As filed with the Securities and Exchange Commission on _________, 2007
Registration No. -________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
AMENDMENT NO. 2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
TONGJI HEALTHCARE GROUP, INC.
-----------------------------
(Name of small business issuer in its charter)
Nevada 8062 None
------ ---------- ---------------
(State or jurisdiction of (Primary Standard (I.R.S. Employer
incorporation or Industrial I.D. Number)
organization) Classification Code
Number)
No.5 Beiji Road, Nanning, China
0086-771-2020000
---------- -----------------
(Address and telephone number of principal executive offices)
No.5 Beiji Road, Nanning, China
0086-771-2020000
--------------------------------
(Address of principal place of business or intended principal place of business)
William T. Hart
Hart & Trinen, LLP
1624 Washington St.
Denver, CO 80203
(303) 839-0061
------------------------------
(Name, address and telephone number of agent for service)
Approximate date of commencement of proposed sale to the public: As soon
as practicable after the effective date of this registration statement.
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
1
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. |_|
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
Proposed Proposed
Maximum Maximum
Title of Each Class of Amount to Offering Aggregate Amount of
Securities to be Be Price Offering Registration
Registered Registered Per Share (1) Price Fee
- --------------------------------------------------------------------------------
Common stock 2,000,000 Shares $1.00 $2,000,000 $215
- --------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457. The per share offering price was calculated based upon
a price of $1.00 per share, which is the price that the shares will be
offered prior to the time that a market develops for the Company's common
stock.
The Company hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until it shall file a further
amendment which specifically states that this registration statement shall
thereafter become effective in accordance with Section 8(a) of the Securities
Act of 1933 or until the registration statement shall become effective on such
date as the Securities and Exchange Commission, acting pursuant to said Section
8(a), may determine.
2
2,000,000 shares of common stock
TONGJI HEALTHCARE GROUP, INC.
This prospectus covers the resale of 2,000,000 shares of our common stock
held by our selling stockholders for whom information is provided under the
"Selling Shareholder" section of this prospectus. The shares will be offered by
the selling stockholders initially at $1.00 per share and thereafter, if the
shares are quoted on the OTC Bulletin Board, at prevailing market prices or at
privately negotiated prices. The offering will terminate on the earlier of the
date all of the shares are sold or one year from the date of this prospectus. We
will not receive any proceeds from the sale of shares offered by the selling
stockholders.
There is no market for our common stock and a market may never develop in
the future.
INVESTING IN OUR COMMON STOCK INVOLVES SUBSTANTIAL RISKS. SEE "RISK
FACTORS" BEGINNING ON PAGE 5.
The Securities and Exchange Commission and state securities regulators
have not approved or disapproved these securities or passed upon the adequacy or
accuracy of this prospectus. Any representation to the contrary is a criminal
offense.
The date of this prospectus is _________, 2007.
3
ABOUT THIS PROSPECTUS
You should rely only on the information contained in this prospectus as we
have not authorized any other person to provide you with different information.
If anyone provides you with different or inconsistent information, you should
not rely on it. We are not making an offer to sell these securities in any
jurisdiction where an offer or sale is not permitted.
PROSPECTUS SUMMARY
This summary highlights material information regarding us and the offering
described in this prospectus. You should read the entire prospectus carefully,
including the financial information and related notes, before making an
investment decision.
Tongji Healthcare Group, Inc. was organized as a Nevada corporation on
December 19, 2006. On December 27, 2006 we issued 15,652,557 shares of our
common stock to acquire all of the outstanding shares of Nanning Tongji Hospital
Co., Ltd., which we refer to as "Tongji Hospital," a PRC company located in
Nanning, China. Unless otherwise indicated, all references to us throughout this
prospectus includes the operations of Tongji Hospital. The purpose of the
transaction was to redomicile us as a U.S. corporation.
We operate a 105 bed hospital in Nanning, China.
We do not have a website.
Our principal executive offices are located at No. 5 Beiji Road, Nanning,
China. Our telephone number is 0086-771-2020000.
The Offering
Securities offered by selling stockholders: 2,000,000 shares of common stock.
Price per share $1.00
Securities outstanding prior to and after 15,652,557 shares of common
the offering: stock.
Use of proceeds: We will not receive any proceeds
from the sale of the common stock
offered by the selling
stockholders.
By means of this prospectus, we are registering the resale of 2,000,000
shares of our common stock which are held by ten selling shareholders, all of
whom exchanged their shares of Tongji Hospital for the 2,000,000 shares we
issued to them. All selling shareholders are residents and citizens of China.
4
Conventions Which Apply to This Prospectus
- ------------------------------------------
Except as otherwise indicated and for purposes of this prospectus only:
o "we", "us" and "our" refer to:
Our company - Tongji Healthcare Group, Inc., as well as Tongji
Hospital, a PRC company that was merged into us in December 2006,
o "China" or "PRC" refers to the People's Republic of China, excluding
Taiwan, Hong Kong and Macau; and
o all references to "RMB" or "Renminbi" are to the legal currency of
China and all references to "$", "U.S. dollars," "dollars" and "US$"
are to the legal currency of the United States.
o unless otherwise indicated, all financial information in this
prospectus is in U.S. dollars.
Forward Looking Statements
- --------------------------
This prospectus includes forward-looking statements. We have based these
forward-looking statements on our current expectations about future events.
These forward-looking statements are subject to risks, uncertainties and
assumptions about us which are discussed in the Risk Factors section above as
well as throughout this prospectus. In light of these risks, uncertainties and
assumptions, any forward-looking events discussed in this prospectus might not
occur.
RISK FACTORS
The shares of common stock offered by this prospectus involve a high
degree of risk and represent a highly speculative investment. You should not
purchase these shares if you cannot afford the loss of your entire investment.
In addition to the other information contained in this prospectus, you should
carefully consider the following risk factors in evaluating an investment in our
common stock. The value of our common stock could decline if any of the risks
discussed below should occur.
The Chinese health care industry is extensively regulated and if we are unable
to comply with all regulations we may be fined, lose our right to be reimbursed
for medicare patients or could lose our license to operate our hospital.
The healthcare industry in China is subject to extensive governmental laws
and regulations relating to licensure, conduct of operations, ownership of
facilities, addition of facilities and services, and fees for services. These
laws and regulations are complex and, in many instances, the healthcare industry
does not have the benefit of significant regulatory or judicial interpretation.
See the "Business" section of this prospectus for more information concerning
these laws and regulations.
5
New regulations under consideration by the Chinese government, if adopted, may
reduce our revenues.
Regulations pertaining to hospitals are currently undergoing reform by the
Chinese government. Pursuant to current policy, hospitals can sell drugs and
medications to patients at a price between prevailing retail and wholesale
prices. During the year ended December 31, 2006 approximately 50% of our
revenues were derived from the sales of drugs and medications. If future
regulations prevented us from selling drugs and medications our revenues would
decline substantially. Other measures under consideration include increasing the
number of healthcare facilities which could increase competition, and changing
the prices we can charge for medical services and medications, which would
reduce our revenues. We cannot predict the impact of these proposed changes
since the changes are not fully defined and we do not know whether those
proposed changes will ever be implemented or when they may take effect.
We may not be able to successfully implement our growth strategies, which would
adversely affect our business.
After the date of this prospectus we will attempt to acquire other
hospitals and companies involved in the healthcare industry in China using cash
and shares of our common stock. Substantial capital may be needed for these
acquisitions and we may need to raise additional funds through the sale of our
common stock, debt financing or other arrangements. Although the amount of
capital we will need will depend upon the size of each particular acquisition
and the number of acquisitions we are able to complete, we do not have any
commitments or arrangements from any person to provide us with any additional
capital. If additional capital is not available to us, we may not be able to
acquire other hospitals or businesses in the healthcare industry.
Even if capital is available, we may not be successful in completing an
acquisition. In some cases an acquisition will require the approval of the
Chinese government. We may be unable to obtain required approvals for any
particular acquisition. Hospitals or companies in the health care field which we
acquire may not be profitable. In addition, the acquisition of hospitals or
companies in the healthcare field may place a strain on our administration and
we may not be able to successfully integrate a newly acquired business into our
organization.
Shares which we may issue in the future may substantially increase the number of
shares available for sale in the public market and may depress the price of our
common stock.
As of the date of this prospectus we had approximately 45,000,000
authorized but unissued shares of common stock which our directors have the
authority to issue without shareholder approval. The issuance of additional
shares of our common stock will dilute the equity ownership of our shareholders
and may depress the price for our common stock, should a market ever develop.
The loss of physicians, our inability to recruit and retain physicians or our
inability to maintain good relations with our physicians could reduce our
revenues and increase our costs.
6
Since physicians generally direct the majority of hospital admissions, our
success, in part, is dependent upon the number and quality of our physicians,
the admissions practices of our physicians and our ability to recruit and retain
physicians.
The loss of our medicare accreditation would result in a significant decrease in
our revenues.
During year ended December 31, 2006 we derived approximately 41% of our
revenues from services provided to Medicare patients. The medicare accreditation
is valid for only one year and must be renewed on an annual basis. If we do not
maintain high standards for patient care the agencies which administer the
Medicare program have the authority to terminate our ability to receive
reimbursement from the Medicare funds.
We could face substantial liability due to medical malpractice.
We may face liability claims in the event our physicians, nurses or
staff are negligent in the treatment of a patient. Although we carry insurance
for medical malpractice, our coverage is limited to $37,500 for each claim and
the successful prosecution of a medical malpractice case against us could have a
material adverse effect on us if the amount of any judgment exceeds our issuance
coverage.
Doing business in China subjects us to economic and political conditions which
differ from those in the United States and which could result in losses.
All of our business is conducted in China. Doing business in China
subjects us to various risks, including changing economic and political
conditions, work stoppages, currency fluctuations and armed conflicts. Unlike
the United States government, the Chinese government exercises significant
control over the Chinese economy through the allocation of resources,
controlling investments by foreigners, foreign currency-denominated
transactions, capital investment and development, and, in some cases, providing
preferential treatment to particular industries or companies.
If relations between the United States and the PRC worsen, investors may be
unwilling to hold or buy our stock and if our securities become qualified for
quotation on an exchange, our stock price may decrease.
At various times during recent years, the U.S. and the PRC have had
significant disagreements over political and economic issues. Controversies may
arise in the future between these two countries. Any political or trade
controversies between the United States and the PRC, whether or not directly
related to our business, could reduce the price of our common stock if our stock
is publicly traded.
The PRC government could change its policies toward private enterprise or even
nationalize or expropriate private enterprises, which could result in the total
loss of our and your investment.
Our business is subject to significant political and economic
uncertainties and may be affected by political, economic and social developments
in the PRC. Over the past several years, the PRC government has pursued economic
reform policies including the encouragement of private economic activity and
7
greater economic decentralization. The PRC government may not continue to pursue
these policies or may significantly alter them to our detriment from time to
time with little, if any, prior notice.
Changes in policies, laws and regulations or in their interpretation or
the imposition of confiscatory taxation, restrictions on currency conversion,
restrictions or prohibitions on dividend payments to stockholders, or
devaluations of currency could cause a decline in the price of our common stock,
should a market for our common stock ever develop. Nationalization or
expropriation could even result in the total loss of your investment.
You may experience difficulties in attempting to enforce liabilities based upon
U.S. federal securities laws against our non-u.s operating subsidiary and its
non-u.s. resident directors and officers
Our operating subsidiary and its assets are located in the PRC. Our
directors and executive officers are foreign citizens and do not reside in the
U.S. It may be difficult for courts in the U.S. to obtain jurisdiction over
these foreign assets or persons, and it may be very difficult or impossible for
you to enforce judgments rendered against us or our directors or executive
officers in U.S. courts. In addition, the courts in China may not permit the
enforcement of judgments arising out of the U.S. and state securities or similar
laws.
Sales of our common stock could reduce the price of our stock.
There are 15,652,557 shares of our common stock outstanding. Once the
registration statement we have filed with the Securities and Exchange Commission
is effective, all of our outstanding shares will be freely tradable, either by
virtue of the registration statement or by Rule 144 of the Securities and
Exchange Commission.
The availability for sale of substantial amounts of common stock under
this prospectus or under Rule 144 could reduce prevailing prices for our common
stock.
8
Two of our shareholders own a controlling interest in our common stock.
Our President and his wife collectively own more than 65% of our
outstanding common stock and are able to control the election of our directors,
the appointment of our officers, and the outcome of other corporate actions
requiring shareholder approval. As a result of this concentration of ownership,
our other shareholders do not have the voting power to change our management,
even if a change in our management would be perceived by the investment
community as being beneficial.
We could use our preferred stock to resist any attempts by shareholders to
change our management.
Our Articles of Incorporation authorize our Board of Directors to issue up
to 20,000,000 shares of preferred stock. The provisions in the Articles of
Incorporation relating to the preferred stock allow our directors to issue
preferred stock with multiple votes per share and dividend rights which would
have priority over any dividends paid with respect to the holders of our common
stock. The issuance of preferred stock with these rights may make the removal of
management difficult even if the removal would be considered beneficial to
shareholders generally, and will have the effect of limiting shareholder
participation in certain transactions such as mergers or tender offers if these
transactions are not favored by our management.
Investors in this offering may have difficulty selling our shares since there is
no current market for our common stock and a market may never develop.
Since shares of our common stock are subject to the "penny stock" rule,
investors in this offering, should a market for our shares ever develop, may
find it difficult to sell their shares.
Trades of our common stock, should a market ever develop, will be subject
to Rule 15g-9 of the Securities Exchange Act of 1934, which rule imposes certain
requirements on broker/dealers who sell securities subject to the rule to
persons other than established customers and accredited investors. For
transactions covered by the rule, brokers/dealers must make a special
suitability determination for purchasers of the securities and receive the
purchaser's written agreement to the transaction prior to sale. The Securities
and Exchange Commission also has rules that regulate broker/dealer practices in
connection with transactions in "penny stocks". Penny stocks generally are
equity securities with a price of less than $5.00 (other than securities
registered on certain national securities exchanges or quoted on the NASDAQ
system, provided that current price and volume information with respect to
transactions in that security is provided by the exchange or system). The penny
stock rules require a broker/ dealer, prior to a transaction in a penny stock
not otherwise exempt from the rules, to deliver a standardized risk disclosure
document prepared by the Commission that provides information about penny stocks
and the nature and level of risks in the penny stock market. The broker/dealer
also must provide the customer with current bid and offer quotations for the
penny stock, the compensation of the broker/dealer and its salesperson in the
transaction, and monthly account statements showing the market value of each
penny stock held in the customer's account. The bid and offer quotations, and
the broker/dealer and salesperson compensation information, must be given to the
customer orally or in writing prior to effecting the transaction and must be
given to the customer in writing before or with the customer's confirmation.
These disclosure requirements may have the effect of reducing the level of
trading activity in the secondary market for our common stock.
9
MARKET FOR OUR COMMON STOCK.
As of the date of this prospectus our common stock was not quoted on any
exchange and there was no public trading market. As of May 31, 2007 we had 243
record shareholders.
As of May 31, 2007, we had 15,652,557 outstanding shares of common stock,
of which 2,000,000 shares are being registered by this prospectus and will be
freely tradable on and after the date of this prospectus. In June 2007 these
2,000,000 shares, as well as the other shares owned by the selling shareholders,
will be eligible for sale under Rule 144.
The remaining outstanding shares are eligible for sale pursuant to Rule
144(k).
In general, under Rule 144 as currently in effect, a person, or persons
whose shares are aggregated, who owns shares that were purchased from us, or any
affiliate, at least one year previously, including a person who may be deemed
our affiliate, is entitled to sell within any three month period, a number of
shares that does not exceed the greater of:
o 1% of the then outstanding shares of our common stock; or
o The average weekly trading volume of our common stock during the four
calendar weeks preceding the date on which notice of the sale is
filed with the Securities and Exchange Commission.
Sales under Rule 144 are also subject to manner of sale provisions, notice
requirements and the availability of current public information about us. Any
person who is not deemed to have been our affiliate at any time during the 90
days preceding a sale, and who owns shares within the definition of "restricted
securities" under Rule 144 under the Securities Act that were purchased from us,
or any affiliate, at least two years previously, is entitled to sell such shares
under Rule 144(k) without regard to the volume limitations, manner of sale
provisions, public information requirements or notice requirements.
Holders of common stock are entitled to receive dividends as may be
declared by our Board of Directors. The Board of Directors is not obligated to
declare a dividend and it is not anticipated that dividends will ever be paid.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATION
You should read the following discussion and analysis of our financial
condition and results of operations in conjunction with our financial statements
and the related notes included elsewhere in this prospectus. Our financial
statements have been prepared in accordance with U.S. GAAP. In addition, our
financial statements and the financial data included in this prospectus reflect
our reorganization and have been prepared as if our current corporate structure
had been in place throughout the relevant periods. The following discussion and
analysis contains forward-looking statements that involve risks and
uncertainties. Actual results could differ materially from those projected in
the forward-looking statements.
10
Overview
We were organized as a Nevada corporation on December 19, 2006. On
December 27, 2006 we issued 15,652,557 shares of our common stock to acquire all
outstanding shares of Nanning Tongji Hospital Co., Ltd., which we refer to as
"Tongji Hospital," a PRC company which was formed in October 30, 2003. The
purpose of the transaction was to redomicile us as a Nevada corporation. Unless
otherwise indicated, all references to us throughout this prospectus includes
the operations of Tongji Hospital.
Our critical accounting policies, as well as recent accounting
pronouncements which apply to us, are described in Note 2 to our financial
statements which are included as part of this prospectus.
Results of Operation
- --------------------
Material changes of items in our Statement of Operations for the three
months ended March 31, 2007, as compared to the three months ended March 31,
2006, are discussed below:
Patient Service Revenue: The increase in revenues was the result of more
patients being treated by our hospital, due to our increased reputation as being
a preferred provider of health care services in the region.
Gross profit: The decrease in gross profit was the result of higher
inventory costs.
Operating Expenses: Selling and promotion expenses increased as we spent
more during the quarter to promote our hospital. General and administrative
expenses increased as we hired more employees to provide medical services.
Depreciation, amortization and expenses increased mainly due to the depreciation
and amortization of new medical equipment.
Material changes of items in our Statement of Operations for the year
ended December 31, 2006, as compared to the year ended December 31, 2005, are
discussed below:
Patient Service Revenue: The increase in revenues was the result of more
patients being treated by our hospital, due to our increased reputation as being
a preferred provider of health care services in the region, and a change in our
patient mix. In 2006 the percentage of inpatients increased from 26 to 38%.
Generally, we receive greater revenue from an inpatient, as opposed to an
outpatient, due to the length of the stay and the services provided to an
inpatient.
Gross profit: The increase in gross profit was the result of higher gross
revenues and a decrease in the cost of medical supplies. The cost of medical
supplies decreased due to better terms from our vendors.
Operating Expenses: Selling and promotion expenses decreased due to less
amounts spent on meals and entertainment. General and administrative fees
declined due to technological upgrades allowing us to reduce the number of
employees in administration. Depreciation, amortization and expenses increased
mainly due to the depreciation and amortization of new medical equipment.
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Trends, Events and Uncertainties
The China Ministry of Health, as well as other related agencies, have
proposed changes to the prices we can charge for medical services, drugs and
medications. We cannot predict the impact of these proposed changes since the
changes are not fully defined and we do not know whether those proposed changes
will ever be implemented or when they may take effect.
In accordance with the relevant laws and regulations of PRC our income tax
rate would typically be 33%. However we have received a waiver from the taxing
authorities in the PRC for corporate income tax for the years ended 2004, 2005
and 2006. Beginning in 2007, we will be taxed at the normal rate of 33%.
In addition, we would normally be required to pay a tax of 5% of the
income derived from providing medical treatment plus city construction and
educational taxes equal to 7% and 3% respectively, of the business tax. We have
accrued these taxes for 2005 but are exempt from these taxes for 2006, 2007 and
2008.
Other than the factors listed above we do not know of any trends, events
or uncertainties that have had or are reasonably expected to have a material
impact on our net sales or revenues or income from continuing operations. Our
business is not seasonal in nature.
Accounting Estimates
- --------------------
In the United States most hospitals have contracts with health insurance
companies which provide that patients with health insurance will be charged
reduced rates for healthcare services. Reduced rates are also charged for
Medicare and Medicaid patients. Although the patient is billed for the services
provided by the hospital at the higher rate normally charged to patients without
insurance the amount billed is reduced by the charges paid by the insurance
carrier and by the difference (sometimes known as the "contractual allowance")
between the normal rate for the services and the reduced rate which the hospital
estimates it will receive from Medicare, Medicaid and insurance companies.
For financial reporting purposes, hospitals in the United States record
revenues based upon established billing rates less adjustments for contractual
allowances. Revenues are recorded based upon the estimated amounts due from the
patients and third-party payors, including federal and state agencies (under the
Medicare and Medicaid programs) managed care health plans, health insurance
companies, and employers. Estimates of contractual allowances under third-party
payor arrangements are based upon the payment terms specified in the related
contractual agreements. Third-party payor contractual payment terms are
generally based upon predetermined rates per diagnosis, per diem rates, or
discounted fee-for-service rates.
Due to the complexities involved in determining amounts ultimately due
under reimbursement arrangements with a large number of third-party payors,
which are often subject to interpretation, the reimbursement actually received
by U.S. hospitals for health care services is sometimes different from their
estimates.
12
The medical system in China is different than that in the United States.
Private medical insurance is not generally available to the Chinese population
and as a result services and medications provided by our hospital are usually
paid for in cash or by the Medicare agencies of the Nanning municipal government
and the Guangxi provincial government. Our billing system automatically
calculates the reimbursements to which we are entitled based upon regulations
promulgated by the Medicare agencies. We bill the Medicare agencies directly for
services provided to patients coved by the Medicare programs. Since we bill the
Medicare agencies directly, our gross revenues are not reduced by contractual
allowances.
Since we only deal with the Nanning municipal and the Guangxi provincial
Medicare agencies we are familiar with their regulations pertaining to
reimbursements. As a result, there is normally no material difference between
the amounts we bill and the amounts we receive for services provided to Medicare
patients.
Liquidity and Capital Resources
The following shows our material sources and (uses) of cash during the
periods presented:
December 31,
March 31, -------------------
2007 2006 2005
---- ---- ----
Cash provided by operations $134,656 $134,656 $459,300
Purchase of medical equipment (54,706) (54,706) (647,085)
Net loans (to) or from related parties (99,319) (99,319) 197,786
Future payments due on our material contractual obligations as of December
31, 2006 are as follows:
Item Total 2007 2008
---- ----- ---- ----
Medical Buildings Lease $50,442 $25,221 $25,221
Except as shown above, as of December 31, 2006 we did not have any
material capital requirements.
As of March 31, 2007 our accounts receivable were approximately 14% of our
revenues for the three months ended March 31, 2007. As of December 31, 2006 our
accounts receivable were approximately 16% of our revenues for the year. In
comparison, our accounts receivable at December 31, 2005 were only 7% of our
revenues for the year. The increase in our accounts receivable is primarily the
result of two factors. First, during 2006 revenues from Medicare patients
increased 12% over 2005. Since we bill the government Medicare funds for
services provided to Medicare patients, receivables result from these services.
In contrast, self-pay patients normally pay at the time the service is provided.
Second, during 2006 we had a 12% increase in the number of inpatients treated. A
larger receivable often results for services provided to inpatients covered by
Medicare since we normally receive greater revenues for these services than for
services provided to outpatients.
13
Virtually all of our accounts receivable at March 31, 2007 and December
31, 2006 were due from the Nanning and Guangxi Medicare agencies. The age of our
accounts receivable as of December 31, 2006 and March 31, 2007 is shown below:
March 31, 2007 December 31, 2006
-------------- -----------------
Less than 30 days old 38% 38%
31 to 60 days old 21% 22%
61 to 90 days old 18% 14%
Over 90 days old 23% 26%
A receivable is recorded as a bad debt and is written off when we consider
it to be uncollectable. During the three months ended March 31, 2007 and the
years ended December 31, 2005 and 2006 we did not write off any bad debts.
Income from our operations has been, and is expected to be in the future,
our primary source of cash.
We do not have any off-balance sheet items reasonably likely to have a
material effect on our financial condition.
BUSINESS
We operate a general hospital with 105 licensed beds. Our hospital offers
care and treatment in the areas of surgery, internal medicine, ophthalmology,
orthopaedics, medical cosmetology, urology, dentistry, gynecology, pediatrics,
rehabilitation and emergency care.
Our emergency room is open 24 hours a day and all of our rooms are air
conditioned.
In 2006 55,773 patients were treated at our hospital, in contrast to
53,682 in 2005. The increase is primarily attributable to additional Medicare
patients.
As is common in China, we generate revenues from providing both medical
treatment and the sale of drugs and medications. We purchase all drugs and
medications which we use and sell from Guangxi Tongji Medicine Co., Ltd., an
affiliated company, at prevailing market prices. Drugs and medications are sold
only to our patients.
Our hospital, which was originally owned by the Nanning Erqing Collective
Industrial Union, has been in operation since 1957. In September 2000, Li-Yu
Chen, one of our principal shareholders, and Guangxi Tongji Medicine Co., Ltd.,
a company controlled by our President, acquired the hospital. During 2006,
Guangxi Tongji Medicine Co., Ltd. distributed its shares in the hospital to its
shareholders. We redomiciled our company as a Nevada corporation since we are
hopeful that our common stock, after the date of this prospectus, will publicly
trade in the United States. It is our belief that being a U.S. corporation will
be helpful since investors are more familiar with U.S. corporations, and are
more likely to invest in them, as opposed to Chinese corporations.
Our hospital is certified as a provider of Medicare services by the
Nanning municipal government and the Guangxi province government. Maintaining
14
the qualifications for acceptance of Medicare patients is very important as
revenue from Medicare patients accounted for 41% of total hospital income in
2006. The Medicare accreditation is valid for only one year and must be renewed
on an annual basis.
Our Medicare agreements with the Nanning municipal government and the
Guangxi provincial government require that we adhere to prescribed standards for
patient care and treatment. The amounts we are permitted to charge Medicare
patients are based upon a variety of factors, including our cost of providing
services and fixed rates for services and medications.
Statistical information concerning our hospital is shown in the following
tables:
Year Ended December 31, Three Months Ended
Revenues 2006 2005 March 31, 2007
-------- ---- ---- ------------------
Medicare-patients 41% 29% 51%
Self-pay-patients 59% 71% 49%
----- ------ --------
100% 100% 100%
===== ====== ========
Patients Treated
----------------
Medicare 40% 40% 51%
Self-pay 60% 60% 49%
----- ------ --------
100% 100% 100%
===== ====== ========
Patients Treated
----------------
Inpatients 38% 26% 32%
Outpatients 62% 74% 68%
----- ------ --------
100% 100% 100%
===== ====== ========
The majority of healthcare providers in China are government owned and
operate at a low level of efficiency. We believe many government-owned hospitals
will be privatized in future. In addition, and according to China Hospital
Administration Association, there are approximately 1500 private hospitals in
China, most of which are independent of each other. The high degree of
fragmentation presents an opportunity for acquisition and economies of scale.
After the date of this prospectus we will attempt to acquire other
hospitals and companies involved in the healthcare industry in China using cash
and shares of our common stock. Substantial capital may be needed for these
acquisitions and we may need to raise additional funds through the sale of our
common stock, debt financing or other arrangements. We do not have any
commitments or arrangements from any person to provide us with any additional
capital. Additional capital may not be available to us, or if available, on
acceptable terms, in which case we would not be able to acquire other hospitals
or businesses in the healthcare industry.
Competition
We compete with eleven government owned hospitals and three privately
owned hospitals in the city of Nanning. We believe that our ability to
effectively compete will be the result of:
15
o Providing advanced medical facilities and comfortable environments
o Maintaining the highest level of professional healthcare
o Maintaining competitive prices for medical treatment and drugs and
medications.
PRC Laws and Regulations Affecting Our Business
Healthcare providers in China are required to comply with many laws and
regulations at the national and local government levels. These laws and
regulations include the following:
o we must register with and maintain an operating license from the local
Administration of Health. We are subject to review by the local
administration of health at least once every three years. If we fail
to meet the standards listed below, our license may be revoked.
o the Licensed Physician Act requires that we only hire doctors who have
been licensed by he PRC government.
o all drugs and medications used in our hospital must be prepared,
transported, and used under the supervision of our internal Commission
of Drug Affairs Management.
o all waste material from our hospital must be properly collected,
sterilized, deposited, transported and disposed of. We are required to
keep records of the origin, type and amount of all waste materials
generated by our hospital.
o We must have at least 20 beds and at least 14 medical professionals on
staff, including three doctors and five nurses.;
o We must provide medical services in the following areas:
o Surgery
o Internal Medicine
o Gynecology
o Emergency Care
o we must establish and follow protocols to prevent medical malpractice.
The protocols require us to:
o insure that patients are adequately informed before they
consent to medical operations or procedures;
o maintain complete medical records which are available for
review by the patient, physicians and the courts;
o voluntarily report any event of malpractice to a local
government agency;
o support the medical services we provide in any
administrative investigation or litigation.
16
If we fail to comply with applicable laws and regulations, we could suffer
penalties, including the loss of our license to operate.
Before we can acquire a hospital or a company in the healthcare field in
China we will be required to submit an application to PRC Ministry of Commerce.
As part of the application we must submit a number of documents, including:
o our financial statements and the financial statements of the
company we propose to acquire.
o a copy of the business license of the company we propose to
acquire,
o evidence that the shareholders of the company we propose to
acquire have approved the transaction,
o an appraisal, conducted by an independent party, of the value of
the company we propose to acquire.
Our agreements with the Nanning Municipal and the Guangxi Provincial
Medicare Funds requires us to:
o Timely deal with any patient complaints;
o Follow the Basic Medical Treatment Insurance procedures of the
City of Nanning and the Guangxi Province;
o Report any accident to the Medicare Funds within 72 hours;
o Determine if patients are eligible for coverage by the Medicare
Funds;
o Control costs by refraining from unnecessary treatments or
procedures;
o Discharge inpatients when their medical condition allows so as
not to prolong their stay in the hospital.
Our agreements are renewed annually if approved by the Medicare funds. Our
agreement the Nanning Municipal Medicare Fund expires in September 2007. Our
agreement with the Guangxi Medicare Fund expires in December 2007.
The PRC Legal System
The PRC legal system is a civil law system. Unlike the common law system,
the civil law system is based on written statutes in which decided legal cases
have little value as precedents. In 1979, the PRC began to promulgate a
comprehensive system of laws and has since introduced many laws and regulations
to provide general guidance on economic and business practices in the PRC and to
regulate foreign investment. Progress has been made in the promulgation of laws
and regulations dealing with economic matters such as corporate organization and
governance, foreign investment, commerce, taxation and trade. The promulgation
of new laws, changes of existing laws and the abrogation of local regulations by
national laws could have a negative impact on our business and business
prospects. In addition, as these laws, regulations and legal requirements are
relatively recent, their interpretation and enforcement involve significant
uncertainty.
17
However, and subject to limitations on converting currency and statutory
reserve requirements, we do not believe there are any limitations concerning our
ability to access the assets held by Tongji Hospital, a PRC corporation which is
our wholly owned subsidiary.
Taxes
In accordance with the relevant laws and regulations of PRC our income tax
rate would typically be 33%. However we have received a waiver from the taxing
authorities in the PRC for corporate income tax for the years ended 2004, 2005
and 2006. Beginning in 2007, we will be taxed at the normal rate of 33%.
In addition, we would normally be required to pay a tax of 5% of the
income derived from providing medical treatment plus city construction and
educational taxes equal to 7% and 3% respectively, of the business tax. We have
accrued these taxes for 2005 but are exempt from these taxes for 2006, 2007 and
2008.
Required Statutory Reserve Funds
In accordance with current Chinese laws, regulations and accounting
standards, we are required to set aside as a general reserve at least 10% of our
respective after-tax profits. Appropriations to the reserve account are not
required after these reserves have reached 50% of our registered capital. These
reserves are created to fund potential operating losses and are not
distributable as cash dividends. We are also required to set aside between 5% to
10% of our after-tax profits to the statutory public welfare reserve. In
addition and at the discretion of our directors, we may set aside a portion of
our after-tax profits for enterprise expansion funds, staff welfare and bonus
funds and a surplus reserve. These statutory reserves and funds can only be used
for specific purposes and may not be used for dividends.
Political and Trade Relations with the United States
Political and trade relations between the U.S. and the PRC
government during the past five years have been volatile and may continue to be
in the future. There can be no assurance that the political and trade
ramifications of these causes of volatility or the emergence of new causes of
volatility will not cause difficulties in our operations in the PRC marketplace.
Economic Reform Issues
The PRC is transitioning from a planned economy to a market economy. While
the PRC government has pursued economic reforms since its adoption of the
open-door policy in 1978, a large portion of the PRC economy is still operating
under five-year plans and annual state plans. Through these plans and other
economic measures, such as control on foreign exchange, taxation and
restrictions on foreign participation in the domestic market of various
industries, the PRC government exerts considerable direct and indirect influence
on the economy. Many of the economic reforms carried out by the PRC government
are unprecedented or experimental, and are expected to be refined and improved.
Other political, economic and social factors can also lead to further
readjustment of such reforms. This refining and readjustment process may not
have a positive effect on our operations or future business development. Our
operating results may be adversely affected by changes in the PRC's economic and
social conditions as well as by changes in the policies of the PRC government,
18
such as changes in laws and regulations (or the interpretation of laws or
regulations), measures which may be introduced to control inflation, changes in
the interest rate or method of taxation, and the imposition of additional
restrictions on currency conversion.
There can be no assurance that the reforms to the PRC's economic system
will continue or that we will not be adversely affected by changes in the PRC's
political, economic, and social conditions and by changes in policies of the
government, such as changes in laws and regulations, measures which may be
introduced to control inflation, changes in the rate or method of taxation,
imposition of additional restrictions on currency conversion and remittance
abroad, and reduction in tariff protection and other import restrictions.
Currency Conversion and Exchange
The currency in the PRC is designated as the Renminbi ("RMB"). Although the
RMB/U.S. dollar exchange rate has been relatively stable in the past five years
there can be no assurance that the exchange rate will not become volatile or
that the RMB will not be officially devalued against the U.S. dollar by
direction of the PRC government.
Exchange rate fluctuations, because of our foreign currency denominated
assets and liabilities, may reduce the value in U.S. dollars of our net fixed
assets and the amount of our earnings. We do not engage in any hedging
activities in order to minimize the effect of exchange rate risks. As of March
31, 2007 the currency exchange rate was approximately 7.73 RMB for each U.S.
dollar.
The PRC government imposes control over the conversion of Renminbi into
foreign currencies. Under the current unified floating exchange rate system, the
People's Bank of China publishes an exchange rate, which we refer to as the PBOC
exchange rate, based on the previous day's dealings in the inter-bank foreign
exchange market. Financial institutions authorized to deal in foreign currency
may enter into foreign exchange transactions at exchange rates within an
authorized range above or below the PBOC exchange rate according to market
conditions.
Although we do not intend to pay dividends, any inability to convert RMB
into U.S.$ will limit our ability to pay dividends in the future.
Employees
As of January 31, 2007, we had 154 full time employees consisting of 49
licensed physicians, 52 nurses, 11 medical professionals, and 42 employees in
administration and finance. None of our employees are represented by a labor
union or similar collective bargaining organization. We believe that our
relations with our employees are good.
Facilities
We lease our two hospital buildings from Guangxi Tongji Medicine Co., Ltd,
a company controlled by our President. The lease on the buildings expires in
December 2008. Based on the exchange rate at December 31, 2006 minimum lease
payments are $25,221 annually in both 2007 and 2008.
19
MANAGEMENT
Name Age Position
---- --- --------
Yun-hui Yu 44 President, Chief Executive Officer and Chairman of
the Board of Directors
Wei-dong Huang 37 Chief Financial and Accounting Officer
Jin-song Zhang 39 Chief Administrative Officer
Jing-xi Lv 61 Vice president and a Director
Jia-lin Zhang 66 Vice president and a Director
Lin Lin 61 Vice president and a Director
Xiang-wei Zeng 64 Vice president and a Director
Directors serve in such capacity until the next annual meeting of our
stockholders and until their successors have been elected and qualified. Our
officers serve at the discretion of our Board of Directors, until their death,
or until they resign or have been removed from office.
Yun-hui Yu is our founder and has been our Chief Executive Officer,
President and one of our directors since October 2003. Since October 1999 Mr. Yu
has also been the Chief Executive Officer and a director of Guangxi Tongji
Medicine Co., Ltd., an affiliated company which operates pharmacies in China.
Mr. Yu received his bachelor's degree in medicine from the First Military
Medical University of the People's Liberation Army of China in August 1984. Mr.
Yu holds a license as a physician from the Chinese Ministry of Health.
Wei-dong Huang has been our Chief Financial and Accounting Officer since
May of 2006. Between April 2005 and May 2006 Mr. Huang was vice project general
manager at the Capital Hotel Group. Between April 2004 and March 2005, Mr. Huang
was the financial director at the Changsha InBev Baisha Beer Group, a brewery in
China. Between November 2002 and April of 2004, Mr. Huang was vice president at
Jingfang Investment & Management Consulting Co., Ltd. Between November 1996 and
November 2002 Mr. Huang was the financial controller at Blue Ribbon Beer Brewery
Co., Ltd, a brewery in China. Mr. Huang received his master's degree from
Capital University of Economics and Business in July of 1995. Mr. Huang holds a
license as a certified public accountant from the Chinese Institute of Certified
Public Accountants and is licensed as a securities broker with the Securities
Association of China.
Jin-song Zhang has been our Chief Administrative Officer since February
2006. Between August 2000 and January 2006 Mr. Jing-song was a director in the
Naning New & High Tech Industrial Development Zone administration commission.
Mr. Zhang received his bachelor's degree in engineering from the Electronic
Engineering Institute of the Peoples Liberation Army in August 1987.
Jing-xi Lv has been one of our vice presidents since January 2004. In
October 2006 Mr. Lv became one of our directors. Between July 1973 and December
2003 Mr. Lv was an orthopaedic surgeon at the Nanning No.1 People's Hospital.
Mr. Lv received his bachelor's degree from Guangxi Medicine University in August
1968 and holds a license as a physician from the Chinese Ministry of Health.
Jia-lin Zhang has been one of our vice presidents since October 2004. In
October 2006 Mr. Zhang became one of our directors. Between 1964 and October
2004, Mr. Zhang was a surgeon at several hospitals, including the People's
20
Hospital of Du'an county and the Red Cross Hospital. Mr. Zhang received his
bachelor's degree from Guangxi Medicine University in August 1964 and holds a
license as physician from the Chinese Ministry of Health.
Lin Lin has been one of our vice presidents since May 2005. In October
2006 Mr. Lin became one of our directors. Between February 1977 and May 2005 Mr.
Lin was the director of Internal Medicine at the Guangxi Ethical Hospital. Mr.
Lin received a bachelor's degree from Guangxi Medicine University in July 1968
and holds a license as a physician from the Chinese Ministry of Health.
Xiang-wei Zeng has been one of our vice presidents since March 2005. In
October 2006 Mr. Zeng became one of our directors. Between 2000 and December
2004, Mr. Zeng was the director of physicians at the Guanxi Medicine University
Hospital. Mr. Zeng received his bachelor's degree from Guangxi Medicine
University in July of 1967 and holds a license as a physician from the Chinese
Ministry of Health.
None of our directors are independent as that term is defined by Rule 4200
of the NASDAQ Marketplace Rules.
Yun-hui Yu and Li Yu Chen, one of our principal shareholders, may be
considered our parents and promoters, as those terms are defined by the
Seurities and Exchange Commission.
Summary Compensation Table
The following table shows the compensation paid or accrued during the two
years ended December 31, 2006 to Yunhui Yu, Tongji' Chief Executive Officer.
None of our executive officers or directors received compensation in excess of
$100,000 during our past two fiscal years.
All
Other
Annual
Stock Option Compen-
Name and Principal Fiscal Salary Bonus Awards Awards sation
Position Year (1) (2) (3) (4) (5) Total
- ------------------ ------ ------ ----- ------ ------ -------- -----
Yunhui Yu, Chief 2006 -- -- -- -- -- --
Executive Officer 2005 -- -- -- -- -- --
(1) The dollar value of base salary (cash and non-cash) received.
(2) The dollar value of bonus (cash and non-cash) received.
(3) During the periods covered by the table, the value of our shares issued as
compensation for services to the persons listed in the table.
(4) The value of all stock options granted during the periods covered by the
table.
(5) All other compensation received that we could not properly report in any
other column of the table.
The terms of the employment agreements which we have with our officers are
shown below. The table also shows the amount of time these officers expect to
devote to our business during the year ending December 31, 2007.
21
Approximate Time
Monthly To Be Devoted
Name Salary Expiration Our Business
---- ------------- ----------- ----------------
Wei-dong Huang $625 5/7/08 100%
Jin-song Zhang $625 2/3/08 100%
Jing-xi Lv $375 12/30/07 100%
Jia-lin Zhang $500 12/30/07 100%
Lin Lin $375 12/30/07 100%
Xiang-wei Zeng $500 12/30/07 100%
We do not have an employment agreement with Yun-hui, our Chief Executive
Officer. During the year ending December 31, 2007 we do not plan to compensate
Mr. Yu. During 2007 Mr. Yu plans to devote substantially all of his time to our
business.
Stock Options. We have not granted any stock options to any of our
officers or directors and do not have any stock option plans in effect as of
January 31, 2007. In the future, we may grant stock options to our officers,
directors, employees or consultants.
Long-Term Incentive Plans. We do not provide our officers or employees
with pension, stock appreciation rights, long-term incentive or other plans and
have no intention of implementing any of these plans for the foreseeable future.
Employee Pension, Profit Sharing or other Retirement Plans. We do not have
a defined benefit, pension plan, profit sharing or other retirement plan,
although we may adopt one or more of such plans in the future.
Compensation of Directors. Our directors do not receive any compensation
pursuant to any standard arrangement for their services as directors.
Transactions with related parties and recent sales of unregistered securities.
In December 2006 we acquired all of the outstanding shares of Tongji
Hospital, a PRC corporation, in exchange for the issuance of 15,652,557 shares
of our common stock to the former shareholders of Tongji Hospital. The purpose
of this transaction was to redomicile us as a Nevada corporation. In connection
with this transaction, the following officers, directors and their affiliates
received shares of our common stock:
Name Number of Shares Received
---- -------------------------
Yun-hui Yu 7,000,000
Wei-dong Huang 32,600
Jin-song Zhang 72,000
Jing-xi Lv 10,000
Jia-lin Zhang 2,000
Lin Lin 1,000
Li-Yu Chen (1) 3,000,000
(1) Li-yu Chen is the wife of Yun-hui Yu.
22
We lease our two hospital buildings from Guangxi Tongji Medicine Co., Ltd.
The lease on the buildings expires in December 2008.
We also purchase all drugs and medications which we use and sell from
Guangxi Tongji Medicine Co., Ltd., at prevailing market prices.
We have advanced funds to Nanning Tongji Chain Pharmacy Co., Ltd. to assist
in their operations. As of December 31, 2006 and 2005 Nanning Tongji Chain
Pharmacy Co., Ltd. owed us $122,649 and $161,751, respectively.
Guangxi Tongji Medicince Co. Ltd. has loaned us money which we have used in
our operations. As of December 31, 2006 and 2005 we owed Nanning Tongji
Healthcare Co. Ltd, $328,614 and $399,997, respectively.
Yun-hui Yu, our Chief Executive Officer and one of our directors, has also
loaned us money which we have used in our operations. As of December 31, 2006
and 2005 we owed Mr. Yu $91,168 and $180,766, respectively.
The amounts we have borrowed and received accrue interest at a rate of 6%
per annum, which exceeds the interest rate in the PRC for similar borrowings.
Yun-Hui Yu owns 90% of the capital stock of Guangxi Tongji Medicince Co.
Ltd. Guangxi Tongji Medicine Co. owns 90% of Nanning Tongji Chain Pharmacy Co.,
Ltd.
PRINCIPAL SHAREHOLDERS
The following table shows, as of the date of this prospectus, the
common stock ownership of (i) each person known by us to be the beneficial owner
of five percent or more of our common stock, (ii) each officer and director and
(iii) all officers and directors as a group. Except as otherwise indicated, each
person has sole voting and investment power with respect to the shares of common
stock shown, and all ownership is of record and beneficial.
Number Percent
Name and Address of Shares of Class
---------------- --------- --------
Yun-hui Yu 7,000,000 45%
No. 5 Beiji Road
Nanning, China 530011
Wei-dong Huang 32,600 *
No. 5 Beiji Road
Nanning, China 530011
Jin-song Zhang 72,000 *
No. 5 Beiji Road
Nanning, China 530011
23
Jing-xi Lv 10,000 *
Dormitories 32-402 of Nanning #1
Hospital, Jingwen Road
Nanning, China
Jia-lin Zhang 2,000 *
Longxiangju Num.201, Qingxiu Village,
Qingshan Road
Nanning, China
Lin Lin 1,000 *
Mingxiu East Road 232-15-1
Nanning, China
Xiang-wei Zeng -- --
Jiangnan District
Nanning, China
Li-Yu Chen 3,000,000 (1) 19.2%
Jinhu Road #22
Mingdu Park 32221
Nanning, China
All officers and directors as 7,117,600 45.5%
a group (7 persons)
(1) Li-Yu Chen is the wife of Yun-hui Yu.
* Less than 10%
As indicated in the "Selling Shareholder" section of this prospectus,
Li-yu Chen is selling some of her shares by means of this prospectus.
SELLING SHAREHOLDERS
The persons listed in the following table plan to offer the shares shown
opposite their respective names by means of this prospectus. The owners of the
common stock to be sold by means of this prospectus are referred to as the
"selling shareholders". The selling shareholders acquired their shares in
exchange for their shares of Tongji Hospital, a PRC corporation which we
acquired in December 2006.
We will not receive any proceeds from the sale of the shares by the
selling shareholders. Although we will pay all costs of registering the shares
offered by the selling shareholders the selling shareholders will pay all sales
commissions and other costs of the sale of the shares offered by them.
24
Shares ownership
Shares to be after this Offering
Shares sold in this ---------------------
Name Owned Offering Number %
- ---- ----- ------------ ------ ------
Li-yu Chen 3,000,000 1,500,000 1,500,000 10.4%
Hong Qian 316,667 100,000 216,667 1.0%
Mei-hui Lin 266,667 50,000 216,667 1.0%
Bai-yun Hou 228,334 50,000 178,334 1.0%
Yi-li Li 200,000 50,000 150,000 0.9%
Ying Gong 200,000 50,000 150,000 0.9%
Qing Huang 166,667 50,000 116,667 0.7%
Xiu-qiong Huang 253,333 50,000 203,333 1.2%
Chong-bo Xu 135,000 50,000 85,000 0.5%
Zhan Huang 130,000 50,000 80,000 0.5%
Plan of Distribution
The shares of our common stock which the selling stockholders or their
pledgees, donees, transferees or other successors in interest may offer for
resale will be sold initially at a price of $1.00 per share and thereafter if
the shares are quoted on the OTC Bulletin Board or any other stock exchange at
then prevailing market prices or privately negotiated prices in one or more of
the following transactions:
o Block transactions;
o Transactions on the OTC Bulletin Board or on such other market on
which our common stock may from time to time be trading;
o Privately negotiated transactions;
o Through the writing of options on the shares;
o Short sales; or
o Any combination of these transactions.
The sale price to the public in these transactions may be:
o The market price prevailing at the time of sale;
o A price related to the prevailing market price;
o Negotiated prices; or
o Such other price as the selling stockholders determine from time to
time.
In the event that we permit or cause this prospectus to lapse, the selling
stockholders may only sell shares of our common stock pursuant to Rule 144 under
the Securities Act of 1933. The selling stockholders will have the sole and
absolute discretion not to accept any purchase offer or make any sale of these
shares of our common stock if they deem the purchase price to be unsatisfactory
at any particular time.
25
The selling stockholders or their pledges, donees, transferees or other
successors in interest, may also sell these shares of our common stock directly
to market makers and/or broker-dealers acting as agents for their customers.
These broker-dealers may receive compensation in the form of discounts,
concessions or commissions from the selling stockholders and/or the purchasers
of these shares of our common stock for whom such broker-dealers may act as
agents. As to a particular broker-dealer, this compensation might be in excess
of customary commissions. Market makers and block purchasers purchasing these
shares of our common stock may do so for their own account and at their own
risk. It is possible that a selling stockholder will attempt to sell shares of
our common stock in block transactions to market makers or other purchasers at a
price per share which may be below the prevailing market price of our common
stock. There can be no assurance that all or any of these shares of our common
stock offered hereby will be issued to, or sold by, the selling stockholders.
Upon effecting the sale of any of these shares of our common stock offered under
this prospectus, the selling stockholders and any brokers, dealers or agents,
hereby, may be deemed "underwriters" as that term is defined under the
Securities Act of 1933 or the Securities Exchange Act of 1934, or the rules and
regulations thereunder.
Alternatively, the selling stockholders may sell all or any part of the
shares of our common stock offered hereby through an underwriter. No selling
stockholder has entered into any agreement with a prospective underwriter and
there is no assurance that any such agreement will be entered into. If a selling
stockholder enters into an agreement or agreements with an underwriter, then the
relevant details will be set forth in a post-effective amendment to the
registration statement of which this prospectus is a part.
The selling shareholders may also sell their shares pursuant to Rule 144
of the Securities and Exchange Commission.
The selling stockholders and any other persons participating in the sale
or distribution of these shares of our common stock will be subject to
applicable provisions of the Securities Exchange Act of 1934 and the rules and
regulations thereunder including, without limitation, Regulation M. These
provisions may restrict activities of, and limit the timing of purchases and
sales of any of these shares of our common stock by, the selling stockholders.
Furthermore, pursuant to Regulation M, a person engaged in a distribution of
securities is prohibited from bidding for, purchasing or attempting to induce
any person to bid for or purchase our securities for a period beginning five
business days prior to the date of this prospectus until such person is no
longer a selling stockholder. These regulations may affect the marketability of
these shares of our common stock.
None of the selling shareholders are broker/dealers or are affiliated with
broker/dealers.
DESCRIPTION OF CAPITAL STOCK
General
We are authorized to issue 50,000,000 shares of our common stock, $.001 par
value per share, and 20,000,000 shares of preferred stock, $.001 par value per
share. See "Business-PRC Laws and Regulations Affecting our Business" for
information concerning PRC laws and regulations which could impact the rights of
our shareholders or limit our ability to pay dividends. Common Stock
26
The holders of common stock are entitled to one vote per share on all
matters submitted to a vote of stockholders, including the election of
directors. There is no right to cumulate votes in the election of directors. The
holders of common stock are entitled to any dividends that may be declared by
the Board of Directors out of funds legally available therefor subject to the
prior rights of holders of preferred stock and any contractual restrictions we
have against the payment of dividends on common stock. In the event of our
liquidation or dissolution, holders of common stock are entitled to share
ratably in all assets remaining after payment of liabilities and the liquidation
preferences of any outstanding shares of preferred stock.
The currency in the PRC is designated as the Renminbi ("RMB"). The PRC
government imposes control over the conversion of Renminbi into foreign
currencies. Although we do not intend to pay dividends, any inability to convert
RMB into U.S. $ will limit our ability to pay dividends in the future.
Holders of common stock have do not have preemptive rights and do not have
the right to convert their common stock into any other securities.
Preferred Stock
We are authorized to issue 20,000,000 shares of $.001 par value preferred
stock in one or more series with such designations, voting powers, if any,
preferences and relative, participating, optional or other special rights, and
such qualifications, limitations and restrictions, as are determined by
resolution of our Board of Directors. The issuance of preferred stock may have
the effect of delaying, deferring or preventing a change in control of our
company without further action by stockholders and could adversely affect the
rights and powers, including voting rights, of the holders of common stock. In
certain circumstances, the issuance of preferred stock could depress the market
price of the common stock. There are no shares of preferred stock outstanding.
EXPERTS
Our financial statements included in this prospectus as of and for
the years ended December 31, 2006 and 2005 have been included in reliance on the
report of Michael Pollack C.P.A., a independent registered certified public
accountant, given on the authority of Mr. Pollack as a expert in accounting and
auditing.
INDEMNIFICATION
The Nevada Revised Statutes authorize indemnification of any of our
directors, officers, employees or agents against expenses incurred in connection
with any action, suit, or proceeding to which he or she is named a party by
reason of having acted or served in such capacity, except for liabilities
arising from his or her own misconduct or negligence in the performance of his
or her duties. In addition, even a director, officer, employee, or agent who was
found liable for misconduct or negligence in the performance of his or her
duties may obtain such indemnification if, in view of all the circumstances in
the case, a court of competent jurisdiction determines such person is fairly and
reasonably entitled to indemnification. Insofar as indemnification for
liabilities arising under the Securities Act of 1933 may be permitted to
27
directors, officers, or persons controlling us pursuant to the foregoing
provisions, we have been informed that in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the Act and is therefore unenforceable.
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission,
Washington, D.C. 20549, a registration statement on Form SB-2 under the
Securities Act of 1933 with respect to the common stock offered by this
prospectus. This prospectus does not contain all of the information in the
registration statement and the exhibits to the registration statement. For
further information with respect to our Company and the common stock offered by
this prospectus, reference is made to the registration statement and the
exhibits filed as part of the registration statement. Following the effective
date of the registration statement, we will be required to file periodic reports
with the Securities and Exchange Commission, including quarterly reports, annual
reports which include our audited financial statements and proxy statements. The
registration statement, including exhibits thereto, and all of our periodic
reports may be inspected without charge at the Securities and Exchange
Commission's principal office in Washington, D.C., and copies of all or any part
thereof may be obtained from the Public Reference Section of the Securities and
Exchange Commission, 100 F Street N.E., Washington, D.C. 20549. You may obtain
additional information regarding the operation of the Public Reference Section
by calling the Securities and Exchange Commission at 1-800-SEC-0330. The
Securities and Exchange Commission also maintains a web site which provides
online access to reports, proxy and information statements and other information
regarding registrants that file electronically with the Securities and Exchange
Commission at the address: http://www.sec.gov.
Transfer Agent
- --------------
Our transfer agent is:
Island Stock Transfer
100 Second Avenue, South, Suite 300N
St. Petersburg, FL 33701
(727) 289-0010
(727) 289-0069 - Fax
www.islandstocktransfer.com
28
TONGJI HEALTHCARE GROUP, INC.
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2006 AND 2005
INDEX TO FINANCIAL STATEMENTS
Page(s)
Report of Independent Registered Public Accounting Firm 1
Consolidated Balance Sheets as of December 31, 2006 and 2005 2
Consolidated Statements of Operations and Accumulated Other
Comprehensive Income for the Years Ended December 31, 2006
and 2005 3
Consolidated Statements of Changes in Stockholders' Equity for the
Years Ended December 31, 2006 and 2005 4
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2006 and 2005 5
Notes to Consolidated Financial Statements 6-21
MICHAEL POLLACK CPA
46 EQUESTRIAN LANE
CHERRY HILL, NJ 08003
TEL (215) 588-5299
FAX (609) 482-8018
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
Tongji Healthcare Group, Inc.
I have audited the accompanying consolidated balance sheets of Tongji Healthcare
Group, Inc. (the "Company") as of December 31, 2006 and 2005 and the related
consolidated statements of operations and accumulated other comprehensive
income, changes in stockholders' equity, and cash flows for the years ended
December 31, 2006 and 2005. These consolidated financial statements are the
responsibility of the Company's management. My responsibility is to express an
opinion on these consolidated financial statements based on my audits.
I conducted my audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that I plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. I was not engaged to
perform an audit of the Company's internal control over financial reporting. My
audit included consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of the
Company's internal control over financial reporting. Accordingly, I express no
such opinion. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audits provide a reasonable basis for my opinion.
In my opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Tongji
Healthcare Group, Inc. as of December 31, 2006 and 2005, and the results of its
consolidated statements of operations and accumulated other comprehensive
income, changes in stockholders' equity, and cash flows for the years ended
December 31, 2006 and 2005 in conformity with U.S. generally accepted accounting
principles.
/s/ Michael Pollack CPA
Cherry Hill, NJ
February 5, 2007
TONGJI HEALTHCARE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2006 AND 2005
(IN US$)
ASSETS
2006 2005
---- ----
Current Assets:
Cash and cash equivalents $ 16,065 $ 28,425
Accounts receivable, net 273,298 98,579
Due from related party 140,079 170,210
Inventories 97,399 129,469
Other receivables 1,908 7,028
Prepaid expenses and other current assets 26,271 1,729
--------- ---------
Total Current Assets 555,020 435,440
--------- ---------
Fixed assets, net of depreciation 825,033 904,214
TOTAL ASSETS $1,380,053 $1,339,654
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
LIABILITIES
Current Liabilities:
Accounts payable and accrued expenses $ 417,729 $ 443,560
Accrued taxes 56,025 51,596
Due to related parties 479,743 609,193
--------- ---------
Total Current Liabilities 953,497 1,104,349
--------- ---------
Total Liabilities 953,497 1,104,349
--------- ---------
STOCKHOLDERS' EQUITY
Preferred stock, $0.001 Par Value; 20,000,000
shares authorized and 0 shares issued and
outstanding - -
Common stock, $0.001 Par Value; 50,000,000 shares
authorized and 15,652,557 and 3,000,000 shares
issued and outstanding, respectively 15,653 363,000
Additional paid-in capital 347,347 -
Statutory reserves 36,848 -
Retained earnings 16,404 (130,990)
Accumulated other comprehensive income 10,304 3,295
--------- ---------
Total Stockholders' Equity 426,556 235,305
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,380,053 $1,339,654
========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
2
TONGJI HEALTHCARE GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND
ACCUMULATED OTHER COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
(IN US $)
2006 2005
---- ----
PATIENT SERVICE REVENUE $ 1,666,641 $ 1,363,265
DIRECT COST OF PROVIDING PATIENT SERVICE REVENUE
Inventory, beginning of period 129,469 59,642
Purchases of medical supplies, pharmaceuticals and
labor 762,961 628,510
Inventory, end of period (97,399) (129,469)
------------- -------------
Total Cost of Sales 795,031 558,683
------------- -------------
GROSS PROFIT 871,610 804,582
------------- -------------
OPERATING EXPENSES
Selling and promotion 412,746 549,817
General and administrative fees 109,919 122,640
Bad debt expense 9,444 5,128
Depreciation, amortization and impairment 133,887 73,596
------------- -------------
Total Operating Expenses 665,996 751,181
------------- -------------
INCOME BEFORE OTHER INCOME (EXPENSE) 205,614 53,401
OTHER INCOME (EXPENSE)
Interest expense, net of interest income 21,372 19,595
------------- -------------
Total Other Income (Expense) 21,372 19,595
------------- -------------
NET INCOME BEFORE PROVISION FOR INCOME TAXES 184,242 33,806
Provision for Income Taxes - (50,105)
------------- -------------
NET INCOME APPLICABLE TO COMMON SHARES $ 184,242 $ (16,299)
============= =============
NET INCOME PER BASIC AND DILUTED SHARES $ 0.01 $ (0.00)
============= =============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 15,652,557 15,652,557
============= =============
COMPREHENSIVE INCOME
Net income $ 184,242 $ (16,299)
Other comprehensive income
Currency translation adjustments 7,009 3,295
------------- -------------
Comprehensive income $ 191,251 $ (13,004)
============= =============
The accompanying notes are an integral part of the consolidated financial
statements.
3
TONGJI HEALTHCARE GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
(IN US $)
Accumulated
Common Stock Additional Retained Other
------------------- Paid-in Statutory Earnings Comprehensive
Shares Amount Capital Reserves (Deficit) Income Total
------ ------ ---------- --------- --------- -------------- -----
Balance January 1, 2005 3,000,000 $ 363,000 $ - $ - $ (114,691) $ - $ 248,309
Net loss for the year ended
December 31, 2005 - - - - (16,299) 3,295 (13,004)
------------ ----------- ---------- ---------- ----------- ------------ -----------
Balance December 31, 2005 3,000,000 363,000 - - (130,990) 3,295 235,305
Shares cancelled in merger with
Tongji, Inc. (3,000,000) (363,000) - - - - (363,000)
Shares issued in reverse merger
with Tongji Healthcare Group, Inc. 15,652,557 15,653 347,347 - - - 363,000
Allocation of staturoty reserves - - - 36,848 (36,848) - -
Net income for the year ended
December 31, 2006 - - - - 184,242 7,009 191,251
------------ ----------- ---------- ---------- ----------- ------------ -----------
Balance December 31, 2006 15,652,557 $ 15,653 $ 347,347 $ 36,848 $ 16,404 $ 10,304 $ 426,556
============ =========== ========== ========== =========== ============ ===========
The accompanying notes are an integral part of the consolidated financial
statements.
4
TONGJI HEALTHCARE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005
(IN US $)
2006 2005
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 184,242 $ (16,299)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation, amortization and impairment 133,887 73,596
Allowance for doubtful accounts 9,196 5,188
Changes in assets and liabilities
(Increase) in accounts receivable (183,915) (79,540)
(Increase) decrease in inventory 32,070 (69,827)
(Increase) decrease in other receivables 5,120 (6,494)
(Increase) decrease in prepaid expenses and
other current assets (24,542) 106,341
Increase (decrease) in accounts payable and
and accrued expenses (21,402) 446,335
-------------- -------------
Total adjustments (49,586) 475,599
-------------- -------------
Net cash provided by operating activities 134,656 459,300
-------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
(Acquisitions) of fixed assets (54,706) (647,085)
Net advancements to/from related parties 30,131 (52,682)
-------------- -------------
Net cash (used in) investing activities (24,575) (699,767)
-------------- -------------
CASH FLOWS FROM FINANCING ACTIVITES
Net advancements from/to related parties (129,450) 250,468
-------------- -------------
Net cash provided by (used in) financing
activities (129,450) 250,468
-------------- -------------
Effect of foreign currency translation 7,009 3,295
-------------- -------------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS (12,360) 13,296
CASH AND CASH EQUIVALENTS -
BEGINNING OF PERIOD 28,425 15,129
-------------- -------------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 16,065 $ 28,425
============== =============
CASH PAID DURING THE YEAR FOR:
Income taxes $ - $ -
============== =============
Interest $ - $ -
============== =============
The accompanying notes are an integral part of the consolidated financial
statements.
5
TONGJI HEALTHCARE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
Nanning Tongji Hospital, Inc. ("NTH") was established in Nanning in
the province of Guangxi of the Peoples Republic of China ("PRC") by
the Nanning Tongji Medical Co. Ltd. and an individual on October 30,
2003.
NTH is the largest private hospital modernized and comprehensive in
combining medical treatment, scientific research, teaching,
prevention, and health care together. It is an assigned hospital for
medical insurance in Nanning and Guangxi. NTH contains specialties in
the areas of internal medicine, surgery, gynecology, pediatrics,
emergency medicine, ophthalmology, medical cosmetology,
rehabilitation, dermatology, otolaryngology, traditional Chinese
medicine, medical imaging, anesthesia, acupuncture, physical therapy,
health examination, and prevention. NTH is a 105-bed modern hospital
containing 4 operating rooms, with Paramount beds installed from
Japan, as well as the most advanced medical equipment worldwide from
Japan, USA, Germany and France.
On December 19, 2006, the officers of NTH filed Articles of
Incorporation in the State of Nevada which was approved December 19,
2006 to create Tongji Healthcare Group, Inc. a Nevada corporation (the
"Company") and also established Tongji, Inc., a Colorado corporation
("Tongji") and wholly owned subsidiary of the Company.
On December 27, 2006, NTH merged into and with Tongji and became the
surviving entity and wholly owned subsidiary of the Company. The
Company incorporated with 50,000,000 shares of common stock and
20,000,000 shares of preferred stock both with a par value of $0.001.
The Company issued 15,652,557 shares of common stock to the
shareholders of NTH in exchange for 100% of the issued and outstanding
shares of NTH. Thereafter and for purposes of these consolidated
financial statements the "Company" and "NTH" are used to refer to the
operations of Nanning Tongji Hospital Co. Ltd. For accounting
purposes, the Company accounted for the acquisition of NTH as a
recapitalization. The transaction involved entities under common
control as defined in Statement of Financial Standard 141, "Business
Combinations". As such, the net assets of NTH were acquired at their
carrying values at the time of the acquisition. The comparative
figures for 2005 are those of NTH.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of the
Company and its subsidiaries. All significant intercompany accounts
and transactions have been eliminated in consolidation.
6
TONGJI HEALTHCARE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2006 AND 2005
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Use of Estimates
----------------
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
On an on-going basis, the Company evaluates its estimates, including,
but not limited to, those related to depreciation, bad debts, income
taxes and contingencies. The Company bases its estimates on historical
experience and on various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying value of assets and
liabilities that are not readily apparent from other sources. Actual
results could differ from those estimates.
Economic and Political Risks
----------------------------
The Company's operations are conducted in the PRC. Accordingly, the
Company's business, financial condition and results of operations may
be influenced by the political, economic and legal environment in the
PRC, and by the general state of the PRC economy.
The Company's operations in the PRC are subject to special
considerations and significant risks not typically associated with
companies in North America and Western Europe. These include risks
associated with, among others, the political, economic and legal
environment and foreign currency exchange. The Company's results may
be adversely affected by changes in governmental policies with respect
to laws and regulations, anti-inflationary measures, currency
conversion, remittances abroad, and rates and methods of taxation,
among other things.
Cash and Cash Equivalents
-------------------------
The Company considers all highly liquid debt instruments and other
short-term investments with an initial maturity of three months or
less to be cash equivalents. The Company maintained $2,782 and $4,962
as of December 31, 2006 and 2005, respectively in cash on hand. The
remainder of the cash was in financial institutions.
Comprehensive Income
--------------------
The Company adopted Statement of Financial Accounting Standards No,
130, "Reporting Comprehensive Income," (SFAS No. 130). SFAS No. 130
requires the reporting of comprehensive income in addition to net
income from operations.
7
TONGJI HEALTHCARE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2006 AND 2005
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Comprehensive Income (Continued)
--------------------------------
Comprehensive income is a more inclusive financial reporting
methodology that includes disclosure of information that historically
has not been recognized in the calculation of net income.
Inventory
---------
Inventory is valued at the lower of cost or market (using the weighted
average method) and net realizable value. Inventory consists of
Chinese and western medicines and pharmaceuticals.
The net realizable value is the estimated selling price in the
ordinary course of business less the estimated costs of completion,
selling expenses and related taxes.
Fair Value of Financial Instruments
-----------------------------------
The carrying amounts reported in the balance sheets for cash and cash
equivalents, accounts receivable, other receivables and payables and
accounts payable approximate fair value because of the immediate or
short-term maturity of these financial instruments.
Currency Translation
--------------------
The Company's functional currency is that of the PRC which is the
Chinese Renminbi (RMB). The reporting currency is that of the US
Dollar. Capital accounts of the consolidated financial statements are
translated into United States dollars from RMB at their historical
exchange rates when the capital transactions occurred. Assets and
liabilities are translated at the exchange rates as of the balance
sheet date. Income and expenditures are translated at the average
exchange rate of the year. The year end RMB to US dollar as of
December 31, 2006 and 2005 were 7.8217 and 8.0702, respectively, and
the average yearly RMB to the US dollar for 2006 and 2005 were 7.9487
and 8.1734, respectively. The RMB is not freely convertible into
foreign currency and all foreign currency exchange transactions must
take place through authorized institutions. No representation is made
that the RMB amounts could have been, or could be, converted into US
dollar at the rates used in translation. The Company records these
translation adjustments as accumulated other comprehensive income
(loss). Gains and losses from foreign currency transactions are
included in other income (expense) in the results of operations. For
the years ended December 31, 2006 and 2005, the Company recorded
approximately $7,009 and $3,295 in transaction gains as a result of
currency translation.
Retirement Benefits
-------------------
Retirement benefits in the form of contributions under defined
contribution retirement plans to the relevant authorities are charged
to the statements of operations as incurred.
8
TONGJI HEALTHCARE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2006 AND 2005
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue Recognition
-------------------
According to the PRC Regulation of Healthcare Institutions, hospitals
shall be subject to register with the Administration of Health of the
local government to obtain their license for hospital service
operation. The Company received its renewed operation license from
Nanning's government in May of 2005, and this license remains valid
until the next scheduled renewing date of May 2008.
Other existing regulations having material effects on the Company's
business include those dealing with physician's licensing, usage of
medicine and injection, public security in health and medical
advertising.
As the Company maintains a facility with an excess of 100 beds, they
must have their license renewed at least every three years. The
Company is also obligated to provide free service or dispatch their
physicians or employees for public assistance. In the US this is
commonly referred to as charity care. The Company has a very small
percentage of their service for this area.
The Company generates revenue from the individuals, as well as
government third-party payers. The Company is paid based upon
several methodologies including established charges, the cost of
providing services, predetermined rates per diagnosis, fixed per
diem rates or discounts from established charges. Revenues are
recorded at estimated net amounts due from patients and the
government third-party payers for healthcare services provided at
the time the service is provided. Revenues for pharmaceutical drug
sales are recognized when the drug is administered to the patient or
when a prescription is filled for a patient based upon a
prescription slip signed by a registered physician.
Revenues are recorded at estimated net amounts due from patients and
government Medicare funds. The Company's accounting system
calculates the expected amounts payable by the government Medicare
funds. The Company bills for services provided to Medicare patients
through a medical card (the US equivalent to an insurance card). The
Company normally receives 90% of the billed amount within 90 days
with the remaining 10% upon approval by the end of the year by the
PRC government. Historically, there have not been significant
differences between the amounts the Company bills the government
Medicare funds and the amounts collected from the Medicare funds.
9
TONGJI HEALTHCARE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2006 AND 2005
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue Recognition (Continued)
-------------------------------
Third-party payers include, the Nanning Social Medicare Management
Center, a license that took effect in November of 2003, which works
like the US Medicare system. The hospital is reimbursed most of the
charges for the services provided with the exception of a self-pay
portion (like Medicare Part B); the hospital also has a license with
the Guangxi Province Medicare Center, which was initially entered into
in May of 2004, which works similar to that of Nanning.
Accounts Receivable
-------------------
Accounts receivable are recorded at the estimated net realizable
amounts from government units, insurance companies and patients.
Generally, the third-party payers reimburse the Company on a 30-day
cycle, so collections for the Company has historically not been
considered to be an area that exposes the Company to additional risk.
Hospital staff does perform verification of patient coverage prior to
examinations and/or procedures taking place
For any Medicare patient who visits the hospital that is qualified for
acceptance, the hospital will only include the portion that the social
insurance organization in the accounts receivable and collects the
self-pay portion in cash at the time of the service. At times, the
pre-determined rate the hospital will charge may be different than the
approved Medicare rate, thus the likelihood of some bad debt can
occur. Management has spent a great deal of time estimating this
likelihood and has determined that a reserve estimating 5% of their
total accounts receivable does accurately account for their bad debt.
Management continues to evaluate this estimate on an ongoing basis.
The Company has established a reserve for uncollectibles of $14,384
and $5,188 as of December 31, 2006 and 2005, respectively.
Advertising Costs
-----------------
The Company expenses the costs associated with advertising as
incurred. Advertising expenses for the years ended December 31, 2006
and 2005 of $84,960 and $4,733, respectively are included in selling
and promotional expenses in the statements of operation. Advertising
costs include marketing brochures and an advertising campaign to the
public.
Advance to Suppliers
--------------------
Advances to suppliers represent the cash paid in advance for
purchasing materials utilized in the hospital as well as
pharmaceuticals.
10
TONGJI HEALTHCARE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2006 AND 2005
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Fixed Assets
------------
Fixed assets are stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets,
net of the estimated residual values; equipment - 5 to 10 years (3 to
5% residual value) and vehicles - 5 years (3% residual value).
When assets are retired or otherwise disposed of, the costs and
related accumulated depreciation are removed from the accounts, and
any resulting gain or loss is recognized in income for the period. The
cost of maintenance and repairs is charged to income as incurred;
significant renewals and betterments are capitalized.
Land Use Rights
---------------
According to the laws of China, the government owns all the land in
China. Companies or individuals are authorized to possess and use the
land only through land use rights granted by the Chinese government.
Land use rights would be amortized using the straight-line method over
the respective lease term. The Company does not have nay land use
rights as they lease the land and building from a related party.
Construction in Progress
------------------------
Construction in progress represents direct costs of construction or
acquisition and design fees incurred, as well as interest charges
directly related to debt incurred on behalf of particular construction
projects. Capitalization of these costs ceases and the construction in
progress is transferred to fixed assets (building or equipment) when
substantially all the activities necessary to prepare the assets for
their intended use are completed. No depreciation is provided until it
is completed and ready for intended use. There were no such costs for
the Company in the years ended December 31, 2006 and 2005,
respectively.
Impairment of Long-Lived Assets
-------------------------------
Long-lived assets, primarily fixed assets, are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount of the assets might not be recoverable. The Company does
perform a periodic assessment of assets for impairment in the absence
of such information or indicators. Conditions that would necessitate
an impairment assessment include a significant decline in the
observable market value of an asset, a significant change in the
extent or manner in which an asset is used, or a significant adverse
change that would indicate that the carrying amount of an asset or
group of assets is not recoverable. For long-lived assets to be held
and used, the Company recognizes an impairment loss only if its
carrying amount is not recoverable through its undiscounted cash flows
and measures the impairment loss based on the difference between the
carrying amount and estimated fair value.
11
TONGJI HEALTHCARE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2006 AND 2005
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Earnings (Loss) Per Share of Common Stock
-----------------------------------------
Basic net earnings (loss) per common share is computed using the
weighted average number of common shares outstanding. Diluted earnings
per share (EPS) includes additional dilution from common stock
equivalents, such as stock issuable pursuant to the exercise of stock
options and warrants. Common stock equivalents are not included in the
computation of diluted earnings per share when the Company reports a
loss because to do so would be antidilutive. The Company did have a
loss for the year ended December 31, 2005, however, the Company did
not have any common stock equivalents to include, so this did not have
an impact on the calculation of earnings per share for 2005.
The Company has not granted any options or warrants during 2006 or
2005, and there are no options or warrants outstanding as of December
31, 2006 and 2005.
The following is a reconciliation of the computation for basic and
diluted EPS:
December 31, December 31,
2006 2005
Net income (loss) $ 184,242 $ (16,299)
Weighted-average common shares
Outstanding (Basic) 15,652,557 15,652,557
Weighted-average common stock
Equivalents
Stock options -- --
Warrants -- --
Weighted-average common shares
Outstanding (Diluted) 15,652,557 15,652,557
Income Taxes
------------
The Company accounts for income tax using an asset and liability
approach and allows for recognition of deferred tax benefits in future
years. Under the asset and liability approach, deferred taxes are
provided for the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. A valuation
allowance is provided for deferred tax assets if it is more likely
than not these items will either expire before the Company is able to
realize their benefits, or that future realization is uncertain.
12
13
TONGJI HEALTHCARE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2006 AND 2005
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes (Continued)
------------------------
In accordance with the relevant tax laws and regulations of PRC and
US, the corporation income tax rate would typically be 33% in the PRC.
The Company has received a waiver (duty free certificate) from the
taxing authorities in the PRC for corporate enterprise income tax for
the year ended 2004 through 2006. Effective 2007, the Company will be
taxed at the rate of 33%.
In addition, companies in the PRC are required to pay business taxes
consisting of 5% of income they derive from providing medical
treatment and city construct taxes, and educational taxes are based on
7% and 3% of the business taxes, and the Company has accrued these
taxes for 2005. The Company has received notification that they are
exempt from these taxes for the years ending 2006 through 2008.
Stock-Based Compensation
The Company follows FASB 123R in accounting for its stock based
compensation (see Recent Accounting Pronouncements). This measures
compensation expense for its employee stock-based compensation using
the intrinsic-value method. Under the intrinsic-value method of
accounting for stock-based compensation, when the exercise price of
options granted to employees and common stock issuances are less than
the estimated fair value of the underlying stock on the date of grant,
deferred compensation is recognized and is amortized to compensation
expense over the applicable vesting period. The Company for 2006 and
2005 did not grant any options or warrants that would need to be
valued under such method. The following represents the effect on net
income attributable to common shareholders per share if the fair value
method had been applied to all awards.
On January 1, 2006, the Company adopted the provisions of FAS No. 123R
"Share-Based Payment" ("FAS 123R") which requires recognition of
stock-based compensation expense for all share-based payments based on
fair value. Prior to January 1, 2006, the Company measured
compensation expense for all of its share-based compensation using the
intrinsic value method prescribed by Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25") and related interpretations. The Company has provided pro
forma disclosure amounts in accordance with FAS No. 148, "Accounting
for Stock-Based Compensation - Transition and Disclosure - an
amendment of FASB Statement No. 123" ("FAS 148"), as if the fair value
method defined by FAS No. 123, "Accounting for Stock Based
Compensation" ("FAS 123") had been applied to its stock-based
compensation.
The Company has elected to use the modified-prospective approach
method. Under that transition method, the calculated expense in 2006
is equivalent to compensation expense for all awards granted prior to,
but not yet vested as of January 1, 2006, based on the grant-date fair
values estimated in accordance with the original provisions of FAS
123. Stock-based compensation expense for all awards granted after
January 1, 2006 is based on the grant-date fair values estimated in
accordance with the provisions of FAS 123R.
13
TONGJI HEALTHCARE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2006 AND 2005
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Stock-Based Compensation (Continued)
------------------------------------
The Company recognizes these compensation costs, net of an estimated
forfeiture rate, on a pro rata basis over the requisite service period
of each vesting tranche of each award. The Company considers voluntary
termination behavior as well as trends of actual option forfeitures
when estimating the forfeiture rate.
December 31,
2005
Net income (loss):
As reported ($16,299)
Add: Stock-based employee compensation
expense included in reported net loss, net of
related tax effects --
Less: Total stock-based employee compensation
expense determined under fair value based
method for all awards, net of related tax
effects --
Pro forma ($16,299)
Net earnings (loss) per share:
As reported:
Basic ($0.00)
Diluted ($0.00)
Pro forma:
Basic ($0.00)
Diluted ($0.00)
The Company measures compensation expense for its non-employee
stock-based compensation under the Financial Accounting Standards
Board (FASB) Emerging Issues Task Force (EITF) Issue No. 96-18,
"Accounting for Equity Instruments that are Issued to Other Than
Employees for Acquiring, or in Conjunction with Selling, Goods or
Services". The fair value of the option issued is used to measure the
transaction, as this is more reliable than the fair value of the
services received. The fair value is measured at the value of the
Company's common stock on the date that the commitment for performance
by the counterparty has been reached or the counterparty's performance
is complete. The fair value of the equity instrument is charged
directly to compensation expense and additional paid-in capital.
Segment Information
-------------------
The Company follows the provisions of SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information". This standard
requires that companies disclose operating segments based on the
manner in which management disaggregates the Company in making
internal operating decisions. For 2006 and 2005, the Company operated
in one geographical location, and segmented their revenues into two
segments; one for the providing of medical care, and one for the sale
of pharmaceuticals.
14
TONGJI HEALTHCARE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2006 AND 2005
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Segment Information (Continued)
-------------------------------
The Company in 2006 had total revenues of $1,666,641 of which $759,256
was revenue recognized for providing medical care, and $907,385 for
the sale of pharmaceuticals.
The Company in 2005 had total revenues of $1,363,265 of which $856,287
was revenue recognized for providing medical care, and $506,978 for
the sale of pharmaceuticals.
Recent Accounting Pronouncements
--------------------------------
In September 2006, the FASB issued SFAS 157, "Fair Value
Measurements." This standard defines fair value, establishes a
framework for measuring fair value in generally accepted accounting
principles, and expands disclosure about fair value measurements. This
statement is effective for financial statements issued for fiscal
years beginning after November 15, 2007. Early adoption is encouraged.
The adoption of SFAS 157 is not expected to have a material impact on
the consolidated financial statements.
In September 2006, the FASB issued SFAS 158, "Employers' Accounting
for Defined Benefit Pension and Other Postretirement Plans, an
amendment of FASB Statements 87, 88, 106 and 132(R)" ("SFAS 158").
SFAS 158 requires an employer to recognize the over-funded or
under-funded status of a defined benefit postretirement plan (other
than a multiemployer plan) as an asset or liability in its statement
of financial position and to recognize changes in that funded status
in the year in which the changes occur through comprehensive income.
SFAS 158 also requires the measurement of defined benefit plan assets
and obligations as of the date of the employer's fiscal year-end
statement of financial position (with limited exceptions). Management
does not expect adoption of SFAS 158 to have a material impact on the
Company's consolidated financial statements.
In February 2007, the FASB issued FAS No. 159, "The Fair Value Option
for Financial Assets and Financial Liabilities - Including an
amendment of FASB Statement No. 115", ("FAS 159") which permits
entities to choose to measure many financial instruments and certain
other items at fair value at specified election dates. A business
entity is required to report unrealized gains and losses on items for
which the fair value option has been elected in earnings at each
subsequent reporting date. This statement is expected to expand the
use of fair value measurement. FAS 159 is effective for financial
statements issued for fiscal years beginning after November 15, 2007,
and interim periods within those fiscal years.
In July 2006, the FASB issued Interpretation No. 48 (FIN No. 48),
"Accounting for Uncertainty in Income Taxes." This interpretation
requires recognition and measurement of uncertain income tax positions
using a "more-likely-than-not" approach. FIN No. 48 is effective for
fiscal years beginning after December 15, 2006. Management is still
evaluating what effect this will have on the Company's consolidated
financial statements.
15
TONGJI HEALTHCARE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2006 AND 2005
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recent Accounting Pronouncements (Continued)
--------------------------------------------
In September 2006, the United States Securities and Exchange
Commission ("SEC") issued SAB 108, "Considering the Effects of Prior
Year Misstatements when Quantifying Misstatements in Current Year
Financial Statements."
This SAB provides guidance on the consideration of the effects of
prior year misstatements in quantifying current year misstatements for
the purpose of a materiality assessment. SAB 108 establishes an
approach that requires quantification of financial statement errors
based on the effects of each of the company's financial statements and
the related financial statement disclosures. SAB 108 permits existing
public companies to record the cumulative effect of initially applying
this approach in the first year ending after November 15, 2006 by
recording the necessary correcting adjustments to the carrying values
of assets and liabilities as of the beginning of that year with the
offsetting adjustment recorded to the opening balance of retained
earnings. Additionally, the use of the cumulative effect transition
method requires detailed disclosure of the nature and amount of each
individual error being corrected through the cumulative adjustment and
how and when it arose. The Company does not anticipate that SAB 108
will have a material impact on its consolidated financial statements.
NOTE 3 - FIXED ASSETS
Fixed assets as of December 31, 2006 and 2005 were as follows:
Estimated
Useful
Lives (Years) 2006 2005
------------- ---- ----
Office equipment 5-10 $179,005 $159,675
Medical equipment 5 785,377 747,722
Fixtures 10 92,052 89,109
Vehicles 5 35,599 34,461
1,092,033 1,030,967
Less: accumulated depreciation 267,000 126,753
Property and equipment, net $ 825,033 $ 904,214
There was $133,887 and $73,596 charged to operations for depreciation
expense for the years ended December 31, 2006 and 2005, respectively.
There was no impairment for these assets during the years ended
December 31, 2006 and 2005.
16
TONGJI HEALTHCARE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2006 AND 2005
NOTE 3 - FIXED ASSETS (CONTINUED)
The Company leases the building and land from a related party, under
an arms length agreement. Rent expense included in selling and
promotional expenses for the years ended December 31, 2006 and 2005
were $24,817 and $24,131 (197,266 RMB each year), respectively. The
lease term runs from October 2003 to December 2008.
NOTE 4 - INVENTORIES
Inventories consisted of the following as of December 31, 2006 and
2005:
2006 2005
Medicines and pharmaceuticals $97,399 $129,469
Less: provision for write-down of inventory - -
Inventory, net $97,399 $129,469
There was no obsolescence of inventory or write-downs of inventory for
the years ended December 31, 2006 and 2005.
NOTE 5 - STOCKHOLDERS' EQUITY
Common Stock
------------
As of December 31, 2006, the Company has 50,000,000 shares of common
stock authorized with a par value of $0.001.
The Company issued 15,652,557 shares of common stock in exchange of
100% of the authorized capital of Nanning Tongji Hospital Co. Ltd.
(CHINA).
Nanning Tongji Hospital Co. Ltd. (CHINA) in 2003 issued 3,000,000
shares.
The Company has not granted any options or warrants during 2006 or
2005, and there were no options or warrants outstanding as of December
31, 2006 and 2005.
Preferred Stock
---------------
As of December 31, 2006, the Company has 20,000,000 shares of
preferred stock authorized with a par value of $0.001. There are no
shares issued and outstanding.
17
TONGJI HEALTHCARE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2006 AND 2005
NOTE 5 - STOCKHOLDERS' EQUITY (CONTINUED)
Statutory Reserves
------------------
The Company is required to make appropriations to reserve funds,
comprising the statutory surplus reserve, statutory welfare fund and
discretionary surplus reserve, based on after-tax net income
determined in accordance with generally accepted accounting principles
of the PRC ("PRC GAAP"). Appropriation to the statutory surplus
reserve is required to be at least 10% of the after tax net income
determined in accordance with the PRC GAAP until the reserve is equal
to 50% of the entities' registered capital.
Appropriations to the statutory public welfare fund is required to be
10% of the after-tax net income determined in accordance with the PRC
GAAP. Appropriations to the discretionary surplus reserve are made at
the discretion of the Board of Directors.
The statutory reserve fund is non-distributable other than during
liquidation and can be used to fund previous years' losses, if any,
and may be utilized for business expansion or converted into share
capital by issuing new shares to existing shareholders in proportion
to their shareholding or by increasing the par value of the shares
currently held by them, providing that the remaining reserve balance
after such issue is not less than 25% of the registered capital.
The statutory welfare reserve can only be utilized on capital items
for the collective benefit of the Company's employees, such as
construction of dormitories, cafeteria facilities, and other staff
welfare facilities. This fund is non-distributable other than
liquidation. The transfer to this fund must be made before
distribution of any dividend to shareholders.
The discretionary surplus fund may be used to acquire fixed assets or
to increase the working capital to expend on production and operation
of the business. The Company's Board of Directors decided not to make
appropriations to this reserve.
NOTE 6 - PROVISION FOR INCOME TAXES
Corporate Income Taxes
----------------------
In accordance with the relevant tax laws and regulations of PRC, the
corporate income tax rate is 33%. As noted, the corporate income tax
for 2004 through 2006 was 0% due to the Company's receipt of a waiver
(tax relief) from the PRC government as they acquired a previous
government-owned hospital and privatized it and improved it.
Commencing, 2007, the corporate tax rate will be 33%.
18
TONGJI HEALTHCARE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2006 AND 2005
NOTE 6 - PROVISION FOR INCOME TAXES (CONTINUED)
Business Taxes
--------------
In accordance with the relevant tax laws and regulations of PRC, the
Company is required to pay business taxes of 5% of income they derive
from providing medical treatment and then 7% and 3%, respectively for
city construct taxes and educational taxes. As noted, the Company has
received a waiver for these taxes for the years ending 2006 through
2008.
At December 31, 2006 and 2005, corporate income and business taxes
consist of the following:
2006 2005
Corporate income tax $ - $ -
Business taxes including city construct
and educational taxes - 50,105
--------- ---------
$ - $ 50,105
A reconciliation of the PRC enterprise income tax and business tax
rate to the effective income tax rate is as follows:
2006 2005
Statutory rate - corporate income tax 0% 0%
Business taxes 0% 149%
--------- ---------
0% 149%
========= =========
The business taxes in 2005 are greater than the pre-tax income due to
the fact that there were adjustments made to the consolidated
financial statements that were recorded subsequent to the tax return
being filed, and unlike Company's in the United States, the Company
cannot request a refund.
Deferred income taxes are determined using the liability method for
the temporary differences between the financial reporting basis and
income tax basis of the Company's assets and liabilities. Deferred
income taxes are measured based on the tax rates expected to be in
effect when the temporary differences are included in the Company's
tax return. Deferred tax assets and liabilities are recognized based
on anticipated future tax consequences attributable to differences
between financial statement carrying amounts of assets and liabilities
and their respective tax bases. The Company has no temporary or
permanent differences. Therefore, no deferred tax assets and
liabilities have been recognized and no valuation allowance has been
established.
19
TONGJI HEALTHCARE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2006 AND 2005
NOTE 6 - PROVISION FOR INCOME TAXES (CONTINUED)
Business Taxes (Cont'd)
-----------------------
The depreciation methods and lives the Company utilizes are identical
for book and tax purposes. Additionally, there is no income or expense
included in books not included in tax.
NOTE 7 - RELATED PARTY TRANSACTIONS
Due from Related Party
----------------------
The Company has entered into an agreement with Nanning Tongji Chain
Pharmacy Co. Ltd. whereby the Company from time to time will advance
amounts to Nanning Tongji Chain Pharmacy Co., Ltd. to assist them in
their operations. The two companies have common shareholders. The
advanced amounts accrue interest at a rate of 6% per annum which
exceeds the interest rates in the PRC for similar borrowings. The
Company as of December 31, 2006 and 2005 is owed, $122,649 and
$161,751, respectively. Accrued interest receivable on this agreement
of $17,430 and $8,459 as of December 31, 2006 and 2005, respectively,
is included in due from related party.
Due to Related Parties
----------------------
The Company has entered into an agreement with Guangxi Tongji Medicine
Co. Ltd. whereby the Company from time to time will be advanced
amounts to assist them in their operations. The two companies have
common shareholders. The advanced amounts accrue interest at a rate of
6% per annum which exceeds the interest rates in the PRC for similar
borrowings. The Company as of December 31, 2006 and 2005 is indebted
to Guangxi Tongji Medicine Co. Ltd., in the amounts of $328,614 and
$399,997, respectively. Accrued interest payable on this agreement of
$40,788 and $17,941 as of December 31, 2006 and 2005, respectively, is
included in due from related party.
The Company has entered into an agreement with the Chairman of the
Company, Mr. Yunhui Yu whereby the Company from time to time will be
advanced amounts to assist them in their operations. The advanced
amounts accrue interest at a rate of 6% per annum which exceeds the
interest rates in the PRC for similar borrowings. The Company as of
December 31, 2006 and 2005 is indebted to their Chairman in the
amounts of $91,168 and $180,766, respectively. Accrued interest
payable on this agreement of $19,173 and $10,489 as of December 31,
2006 and 2005, respectively, is included in due from related party.
20
TONGJI HEALTHCARE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2006 AND 2005
NOTE 7 - RELATED PARTY TRANSACTIONS (CONTINUED)
Rental
------
The Company has entered into a lease agreement for their hospital with
Guangxi Tongji Medicine Co., Ltd. that expires December 2008. Monthly
rentals are 16,438.86 per month (RMB). Based on the exchange rate at
December 31, 2006, minimum lease payments are as follows:
Year ending December 31, 2007 $25,221
2008 25,221
21
TONGJI HEALTHCARE GROUP, INC.
CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2007 AND 2006
INDEX TO FINANCIAL STATEMENTS (UNAUIDTED)
Page(s)
Report of Independent Registered Public Accounting Firm 1
Consolidated Balance Sheet as of March 31, 2007 2
Consolidated Statements of Operations and Accumulated Other
Comprehensive Income for the Three Months Ended March 31, 2007 3
Consolidated Statements of Changes in Stockholders' Equity
for the Three Months Ended March 31, 2007 and the Years
Ended December 31, 2006 and 2005 4
Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 2007 5
Notes to Consolidated Financial Statements 6-20
MICHAEL POLLACK CPA
46 EQUESTRIAN LANE
CHERRY HILL, NJ 08003
TEL (215) 588-5299
FAX (609) 482-8018
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
Tongji Healthcare Group, Inc.
I have reviewed the accompanying consolidated balance sheet of Tongji Healthcare
Group, Inc. (the "Company") as of March 31, 2007 and the related consolidated
statements of operations and accumulated other comprehensive income (loss),
changes in stockholders' equity, and cash flows for the three months ended March
31, 2007 and 2006. These interim consolidated financial statements are the
responsibility of the Company's management.
I conducted the reviews in accordance with standards of the Public Company
Accounting Oversight Board (United States). A review of interim financial
information consists principally of applying analytical procedures and making
inquiries of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with standards
of the Public Company Accounting Oversight Board (United States), the objective
of which is the expression of an opinion regarding the condensed consolidated
financial statements taken as a whole. Accordingly, I do not express such an
opinion.
Based on my reviews, I am not aware of any material modifications that should be
made to the accompanying interim consolidated financial statements for them to
be in conformity with U.S. generally accepted accounting principles.
/s/ Michael Pollack CPA
Cherry Hill, NJ
May 2, 2007
1
TONGJI HEALTHCARE GROUP, INC.
CONSOLIDATED BALANCE SHEET (UNAUDITED)
MARCH 31, 2007
(IN US$)
ASSETS
Current Assets:
Cash and cash equivalents $ 37,681
Accounts receivable, net 218,390
Due from related party 144,369
Inventories 78,813
Other receivables 992
Prepaid expenses and other current assets 2,200
------------
Total Current Assets 482,445
------------
Fixed assets, net of depreciation 798,136
------------
TOTAL ASSETS $1,280,581
============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Current Liabilities:
Accounts payable and accrued expenses $ 402,464
Accrued taxes 66,399
Due to related parties 360,326
------------
Total Current Liabilities 829,189
------------
Total Liabilities 829,189
------------
STOCKHOLDERS' EQUITY
Preferred stock, $0.001 Par Value; 20,000,000
shares authorized and 0 shares issued and
outstanding --
Common stock, $0.001 Par Value; 50,000,000 shares
authorized and 15,652,557 and 3,000,000 shares
issued and outstanding, respectively 15,653
Additional paid-in capital 347,347
Statutory reserves 36,848
Retained earnings 37,294
Accumulated other comprehensive income 14,250
------------
Total Stockholders' Equity 451,392
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,280,581
============
The accompanying notes are an integral part of the consolidated financial
statements.
2
TONGJI HEALTHCARE GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND
ACCUMULATED OTHER COMPREHENSIVE INCOME (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2007 AND 2006
(IN US $)
2007 2006
PATIENT SERVICE REVENUE $ 470,826 $ 314,844
----------- -----------
DIRECT COST OF PROVIDING PATIENT
SERVICE REVENUE
Inventory, beginning of period 97,399 129,469
Purchases of medical supplies, pharmaceuticals
and labor 229,942 18,348
Inventory, end of period (78,813) (29,241)
----------- -----------
Total Cost of Sales 248,528 118,576
----------- -----------
GROSS PROFIT 222,298 196,268
----------- -----------
OPERATING EXPENSES
Selling and promotion 104,970 30,554
General and administrative fees 46,121 34,527
Bad debt expense (recovery of bad debt) (3,035) 1,914
Depreciation, amortization and impairment 36,407 26,697
----------- -----------
Total Operating Expenses 184,463 93,692
----------- -----------
INCOME BEFORE OTHER INCOME (EXPENSE) 37,835 102,576
OTHER INCOME (EXPENSE)
Interest expense, net of interest income 6,145 6,072
----------- -----------
Total Other Income (Expense) 6,145 6,072
----------- -----------
NET INCOME BEFORE PROVISION FOR
INCOME TAXES 31,690 96,504
Provision for Income Taxes (10,800) --
----------- -----------
NET INCOME APPLICABLE TO COMMON SHARES $ 20,890 $ 96,504
=========== ===========
NET INCOME PER BASIC AND DILUTED SHARES $ 0.00 $ 0.01
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 15,652,557 15,652,557
=========== ===========
COMPREHENSIVE INCOME
Net income $ 20,890 $ 96,504
Other comprehensive income
Currency translation adjustments 3,899 1,525
----------- -----------
Comprehensive income $ 24,789 $ 98,029
=========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
3
TONGJI HEALTHCARE GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS'
EQUITY (UNAUDITED) FOR THE THREE MONTHS ENDED MARCH 31, 2007 AND YEARS ENDED
DECEMBER 31, 2006 AND 2005
(IN US $)
Accumulated
Common Stock Additional Retained Other
------------------- Paid-in Statutory Earnings Comprehensive
Shares Amount Capital Reserves (Deficit) Income Total
------ ------ ---------- --------- --------- -------------- -----
Balance January 1, 2005 3,000,000 $ 363,000 $ - $ - $ (114,691) $ - $ 248,309
Net loss for the year ended
December 31, 2005 - - - - (16,299) 3,295 (13,004)
Balance December 31, 2005 3,000,000 363,000 - - (130,990) 3,295 235,305
Shares cancelled in merger
with Tongji, Inc. (3,000,000) (363,000) - - - - (363,000)
Shares issued in reverse merger
with Tongji Healthcare Group, Inc. 15,652,557 15,653 347,347 - - - 363,000
Allocation of statutory reserves - - - 36,848 (36,848) - -
Net income for the year ended
December 31, 2006 - - - - 184,242 7,009 191,251
Balance December 31, 2006 15,652,557 15,653 347,347 36,848 16,404 10,304 426,556
Net income for the three months
ended March 31, 2007 - - - - 20,890 3,946 24,836
------------ ------------ --------- ----------- ----------- ---------- ----------
15,652,557 $ 15,653 $ 347,347 $ 36,848 $ 37,294 $ 14,250 $451,392
============ ============ ========= =========== =========== ========== =========
The accompanying notes are an integral part of the consolidated financial
statements.
4
TONGJI HEALTHCARE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2007 AND 2006
(IN US $)
2007 2006
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 20,890 $ 96,504
------------ ------------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, amortization and impairment 36,407 26,697
Allowance for doubtful accounts (3,035) 1,914
Changes in assets and liabilities
(Increase) decrease in accounts receivable 57,943 (39,163)
Decrease in inventory 18,586 100,228
Decrease in other receivables 916 4,550
Decrease in prepaid expenses and other
current assets 24,071 1,729
(Decrease) in accounts payable and
and accrued expenses (4,891) (72,293)
------------ ------------
Total adjustments 129,997 23,662
------------ ------------
Net cash provided by operating activities 150,887 120,166
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
(Acquisitions) of fixed assets (385) (38,128)
Net advancements to/from related parties (4,290) 13,083
------------ ------------
Net cash (used in) investing activities (4,675) (25,045)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITES
Net advancements from/to related parties (119,417) (132,578)
------------ ------------
Net cash (used in) financing activities (119,417) (132,578)
------------ ------------
Effect of foreign currency translation (5,179) 23,327
------------ ------------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS 21,616 (14,130)
CASH AND CASH EQUIVALENTS -
BEGINNING OF PERIOD 16,065 28,425
------------ ------------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 37,681 $ 14,295
============ ============
CASH PAID DURING THE PERIOD FOR:
Income taxes $ - $ -
============ ============
Interest $ - $ -
============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
5
TONGJI HEALTHCARE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2007 AND 2006
NOTE 1- ORGANIZATION AND BASIS OF PRESENTATION
Nanning Tongji Hospital, Inc. ("NTH") was established in Nanning in
the province of Guangxi of the Peoples Republic of China ("PRC") by
the Nanning Tongji Medical Co. Ltd. and an individual on October 30,
2003.
NTH is the largest private hospital modernized and comprehensive in
combining medical treatment, scientific research, teaching,
prevention, and health care together. It is an assigned hospital for
medical insurance in Nanning and Guangxi. NTH contains specialties in
the areas of internal medicine, surgery, gynecology, pediatrics,
emergency medicine, ophthalmology, medical cosmetology,
rehabilitation, dermatology, otolaryngology, traditional Chinese
medicine, medical imaging, anesthesia, acupuncture, physical therapy,
health examination, and prevention. NTH is a 105-bed modern hospital
containing 4 operating rooms, with Paramount beds installed from
Japan, as well as the most advanced medical equipment worldwide from
Japan, USA, Germany and France.
On December 19, 2006, the officers of NTH filed Articles of
Incorporation in the State of Nevada which was approved December 19,
2006 to create Tongji Healthcare Group, Inc. a Nevada corporation (the
"Company") and also established Tongji, Inc., a Colorado corporation
("Tongji") and wholly owned subsidiary of the Company.
On December 27, 2006, NTH merged into and with Tongji and became the
surviving entity and wholly owned subsidiary of the Company. The
Company incorporated with 50,000,000 shares of common stock and
20,000,000 shares of preferred stock both with a par value of $0.001.
The Company issued 15,652,557 shares of common stock to the
shareholders of NTH in exchange for 100% of the issued and outstanding
shares of NTH. Thereafter and for purposes of these consolidated
financial statements the "Company" and "NTH" are used to refer to the
operations of Nanning Tongji Hospital Co. Ltd. For accounting
purposes, the Company accounted for the acquisition of NTH as a
recapitalization. The transaction involved entities under common
control as defined in Statement of Financial Standard 141, "Business
Combinations". As such, the net assets of NTH were acquired at their
carrying values at the time of the acquisition. The comparative
figures for 2006 are those of NTH.
NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its subsidiaries. All significant inter-company accounts
and transactions have been eliminated in consolidation.
6
TONGJI HEALTHCARE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2007 AND 2006
NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Use of Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during
the reporting period. On an on-going basis, the Company evaluates
its estimates, including, but not limited to, those related to
depreciation, bad debts, income taxes and contingencies. The Company
bases its estimates on historical experience and on various other
assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making
judgments about the carrying value of assets and liabilities that
are not readily apparent from other sources. Actual results could
differ from those estimates.
Economic and Political Risks
The Company's operations are conducted in the PRC. Accordingly, the
Company's business, financial condition and results of operations
may be influenced by the political, economic and legal environment
in the PRC, and by the general state of the PRC economy.
The Company's operations in the PRC are subject to special
considerations and significant risks not typically associated with
companies in North America and Western Europe. These include risks
associated with, among others, the political, economic and legal
environment and foreign currency exchange. The Company's results may
be adversely affected by changes in governmental policies with
respect to laws and regulations, anti-inflationary measures,
currency conversion, remittances abroad, and rates and methods of
taxation, among other things.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments and other
short-term investments with an initial maturity of three months or
less to be cash equivalents. The Company maintained $10,325 as of
March 31, 2007 in cash on hand. The remainder of the cash was in
financial institutions.
Comprehensive Income
The Company adopted Statement of Financial Accounting Standards
No, 130, "Reporting Comprehensive Income," (SFAS No. 130). SFAS No.
130 requires the reporting of comprehensive income in addition to
net income from operations.
7
TONGJI HEALTHCARE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2007 AND 2006
NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Comprehensive Income (Continued)
Comprehensive income is a more inclusive financial reporting
methodology that includes disclosure of information that
historically has not been recognized in the calculation of net
income.
Inventory
Inventory is valued at the lower of cost or market (using the
weighted average method) and net realizable value. Inventory
consists of Chinese and western medicines and pharmaceuticals.
The net realizable value is the estimated selling price in the
ordinary course of business less the estimated costs of completion,
selling expenses and related taxes.
Fair Value of Financial Instruments
The carrying amounts reported in the balance sheets for cash and
cash equivalents, accounts receivable, other receivables and
payables and accounts payable approximate fair value because of the
immediate or short-term maturity of these financial instruments.
Currency Translation
The Company's functional currency is that of the PRC which is the
Chinese Renminbi (RMB). The reporting currency is that of the US
Dollar. Capital accounts of the consolidated financial statements
are translated into United States dollars from RMB at their
historical exchange rates when the capital transactions occurred.
Assets and liabilities are translated at the exchange rates as of
the balance sheet date. Income and expenditures are translated at
the average exchange rate of the year. The period end RMB to US
dollar as of March 31, 2007 was 7.7342, and the average period RMB
to the US dollar for the three months ended March 31, 2007 and 2006
were 7.7780 and 8.0498, respectively. The RMB is not freely
convertible into foreign currency and all foreign currency exchange
transactions must take place through authorized institutions. No
representation is made that the RMB amounts could have been, or
could be, converted into US dollar at the rates used in translation.
The Company records these translation adjustments as accumulated
other comprehensive income (loss). Gains and losses from foreign
currency transactions are included in other income (expense) in the
results of operations. For the three months ended March 31, 2007 and
2006, the Company recorded approximately $3,946 and $1,525 in
transaction gains as a result of currency translation.
Retirement Benefits
Retirement benefits in the form of contributions under defined
contribution retirement plans to the relevant authorities are
charged to the statements of operations as incurred.
8
TONGJI HEALTHCARE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2007 AND 2006
NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue Recognition
According to the PRC Regulation of Healthcare Institutions,
hospitals shall be subject to register with the Administration of
Health of the local government to obtain their license for hospital
service operation. The Company received its renewed operation
license from Nanning's government in May of 2005, and this license
remains valid until the next scheduled renewing date of May 2008.
Other existing regulations having material effects on the Company's
business include those dealing with physician's licensing, usage of
medicine and injection, public security in health and medical
advertising.
As the Company maintains a facility with an excess of 100 beds, they
must have their license renewed at least every three years. The
Company is also obligated to provide free service or dispatch their
physicians or employees for public assistance. In the US this is
commonly referred to as charity care. The Company has a very small
percentage of their service for this area.
The Company generates revenue from the individuals as well as
third-party payers. The Company is paid based upon several
methodologies including established charges, the cost of providing
services, predetermined rates per diagnosis, fixed per diem rates or
discounts from established charges. Revenues are recorded at
estimated net amounts due from patients and the government
third-party payers for healthcare services provided at the time the
service is provided. Revenues for pharmaceutical drug sales are
recognized when the drug is administered to the patient or when a
prescription is filled for a patient based upon a prescription slip
signed by a registered physician.
Revenues are recorded at estimated net amounts due from patients and
government Medicare funds. The Company's accounting system
calculates the expected amounts payable by the government Medicare
funds. The Company bills for services provided to Medicare patients
through a medical card (the US equivalent to an insurance card). The
Company normally receives 90% of the billed amount within 90 days
with the remaining 10% upon approval by the end of the year by the
PRC government. Historically, there have not been significant
differences between the amounts the Company bills the government
Medicare funds and the amounts collected from the Medicare funds.
9
TONGJI HEALTHCARE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2007 AND 2006
NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue Recognition (Continued)
Third-party payers include, the Nanning Social Medicare Management
Center, a license that took effect in November of 2003, which works
like the US Medicare system. The hospital is reimbursed most of the
charges for the services provided with the exception of a self-pay
portion (like Medicare Part B); the hospital also has a license with
the Guangxi Province Medicare Center, which was initially entered
into in May of 2004, which works similar to that of Nanning.
Accounts Receivable
Accounts receivable are recorded at the estimated net realizable
amounts from government units, insurance companies and patients.
Generally, the third-party payers reimburse the Company on a 30-day
cycle, so collections for the Company has historically not been
considered to be an area that exposes the Company to additional
risk. Hospital staff does perform verification of patient coverage
prior to examinations and/or procedures taking place
For any Medicare patient who visits the hospital that is qualified
for acceptance, the hospital will only include the portion that the
social insurance organization in the accounts receivable and
collects the self-pay portion in cash at the time of the service. At
times, the pre-determined rate the hospital will charge may be
different than the approved Medicare rate, thus the likelihood of
some bad debt can occur. Management has spent a great deal of time
estimating this likelihood and has determined that a reserve
estimating 5% of their total accounts receivable does accurately
account for their bad debt. Management continues to evaluate this
estimate on an ongoing basis.
The Company has established a reserve for uncollectibles of $11,494
as of March 31, 2007.
Advertising Costs
The Company expenses the costs associated with advertising as
incurred. Advertising expenses for the three months ended March 31,
2007 and 2006 of $61,637 and $540, respectively are included in
selling and promotional expenses in the statements of operation.
Advertising costs include marketing brochures and an advertising
campaign to the public.
Advance to Suppliers
Advances to suppliers represent the cash paid in advance for
purchasing materials utilized in the hospital as well as
pharmaceuticals.
10
TONGJI HEALTHCARE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2007 AND 2006
NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Fixed Assets
Fixed assets are stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets,
net of the estimated residual values; equipment - 5 to 10 years (3
to 5% residual value) and vehicles - 5 years (3% residual value).
When assets are retired or otherwise disposed of, the costs and
related accumulated depreciation are removed from the accounts, and
any resulting gain or loss is recognized in income for the period.
The cost of maintenance and repairs is charged to income as
incurred; significant renewals and betterments are capitalized.
Land Use Rights
According to the laws of China, the government owns all the land in
China. Companies or individuals are authorized to possess and use
the land only through land use rights granted by the Chinese
government. Land use rights would be amortized using the
straight-line method over the respective lease term. The Company
does not have nay land use rights as they lease the land and
building from a related party.
Construction in Progress
Construction in progress represents direct costs of construction or
acquisition and design fees incurred, as well as interest charges
directly related to debt incurred on behalf of particular
construction projects. Capitalization of these costs ceases and the
construction in progress is transferred to fixed assets (building or
equipment) when substantially all the activities necessary to
prepare the assets for their intended use are completed. No
depreciation is provided until it is completed and ready for
intended use. There were no such costs for the Company in the three
months ended March 31, 2007 and 2006, respectively.
Impairment of Long-Lived Assets
Long-lived assets, primarily fixed assets, are reviewed for
impairment whenever events or changes in circumstances indicate that
the carrying amount of the assets might not be recoverable. The
Company does perform a periodic assessment of assets for impairment
in the absence of such information or indicators. Conditions that
would necessitate an impairment assessment include a significant
decline in the observable market value of an asset, a significant
change in the extent or manner in which an asset is used, or a
significant adverse change that would indicate that the carrying
amount of an asset or group of assets is not recoverable. For
long-lived assets to be held and used, the Company recognizes an
impairment loss only if its carrying amount is not recoverable
through its undiscounted cash flows and measures the impairment loss
based on the difference between the carrying amount and estimated
fair value.
11
TONGJI HEALTHCARE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2007 AND 2006
NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Earnings (Loss) Per Share of Common Stock
Basic net earnings (loss) per common share is computed using the
weighted average number of common shares outstanding. Diluted
earnings per share (EPS) includes additional dilution from common
stock equivalents, such as stock issuable pursuant to the exercise
of stock options and warrants. Common stock equivalents are not
included in the computation of diluted earnings per share when the
Company reports a loss because to do so would be antidilutive. The
Company did not have a loss for either period.
The Company has not granted any options or warrants during 2007 or
2006, and there are no options or warrants outstanding as of March
31, 2007.
The following is a reconciliation of the computation for basic and
diluted EPS:
March 31, March 31,
2007 2006
--------- ---------
Net income $ 20,890 $ 96,504
--------- ---------
Weighted-average common shares
Outstanding (Basic) 15,652,557 15,652,557
Weighted-average common stock
Equivalents
Stock option - -
Warrants - -
Weighted-average common shares
Outstanding (Diluted) 15,652,557 15,652,557
============ ============
Income Taxes
The Company accounts for income tax using an asset and liability
approach and allows for recognition of deferred tax benefits in
future years. Under the asset and liability approach, deferred taxes
are provided for the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. A
valuation allowance is provided for deferred tax assets if it is
more likely than not these items will either expire before the
Company is able to realize their benefits, or that future
realization is uncertain.
12
TONGJI HEALTHCARE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2007 AND 2006
NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes (Continued)
In accordance with the relevant tax laws and regulations of PRC and
US, the corporation income tax rate would typically be 33% in the
PRC. The Company has received a waiver (duty free certificate) from
the taxing authorities in the PRC for corporate enterprise income
tax for the year ended 2004 through 2006. Effective 2007, the
Company will be taxed at the rate of 33%.
In addition, companies in the PRC are required to pay business taxes
consisting of 5% of income they derive from providing medical
treatment and city construct taxes, and educational taxes are based
on 7% and 3% of the business taxes, and the Company had accrued
these taxes for 2005. The Company has received notification that
they are exempt from these taxes for the years ending 2006 through
2008.
Stock-Based Compensation
The Company follows FASB 123R in accounting for its stock based
compensation (see Recent Accounting Pronouncements). This measures
compensation expense for its employee stock-based compensation using
the intrinsic-value method. Under the intrinsic-value method of
accounting for stock-based compensation, when the exercise price of
options granted to employees and common stock issuances are less
than the estimated fair value of the underlying stock on the date of
grant, deferred compensation is recognized and is amortized to
compensation expense over the applicable vesting period. The Company
for 2007 and 2006 did not grant any options or warrants that would
need to be valued under such method. The following represents the
effect on net income attributable to common shareholders per share
if the fair value method had been applied to all awards.
On January 1, 2006, the Company adopted the provisions of FAS No.
123R "Share-Based Payment" ("FAS 123R") which requires recognition
of stock-based compensation expense for all share-based payments
based on fair value. Prior to January 1, 2006, the Company measured
compensation expense for all of its share-based compensation using
the intrinsic value method prescribed by Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25") and related interpretations. The Company has provided pro
forma disclosure amounts in accordance with FAS No. 148, "Accounting
for Stock-Based Compensation - Transition and Disclosure - an
amendment of FASB Statement No. 123" ("FAS 148"), as if the fair
value method defined by FAS No. 123, "Accounting for Stock Based
Compensation" ("FAS 123") had been applied to its stock-based
compensation.
13
TONGJI HEALTHCARE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2007 AND 2006
NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Stock-Based Compensation (Continued)
The Company has elected to use the modified-prospective approach
method. Under that transition method, the calculated expense in 2006
is equivalent to compensation expense for all awards granted prior
to, but not yet vested as of January 1, 2006, based on the
grant-date fair values estimated in accordance with the original
provisions of FAS 123. Stock-based compensation expense for all
awards granted after January 1, 2006 is based on the grant-date fair
values estimated in accordance with the provisions of FAS 123R.
The Company recognizes these compensation costs, net of an estimated
forfeiture rate, on a pro rata basis over the requisite service
period of each vesting tranche of each award. The Company considers
voluntary termination behavior as well as trends of actual option
forfeitures when estimating the forfeiture rate.
The Company measures compensation expense for its non-employee
stock-based compensation under the Financial Accounting Standards
Board (FASB) Emerging Issues Task Force (EITF) Issue No. 96-18,
"Accounting for Equity Instruments that are Issued to Other Than
Employees for Acquiring, or in Conjunction with Selling, Goods or
Services". The fair value of the option issued is used to measure
the transaction, as this is more reliable than the fair value of the
services received. The fair value is measured at the value of the
Company's common stock on the date that the commitment for
performance by the counterparty has been reached or the
counterparty's performance is complete. The fair value of the equity
instrument is charged directly to compensation expense and
additional paid-in capital.
Segment Information
The Company follows the provisions of SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information". This
standard requires that companies disclose operating segments based
on the manner in which management disaggregates the Company in
making internal operating decisions. For 2007 and 2006, the Company
operated in one geographical location, and segmented their revenues
into two segments; one for the providing of medical care, and one
for the sale of pharmaceuticals.
The Company in 2007 had total revenues of $470,826 of which $240,121
was revenue recognized for providing medical care, and $230,705 for
the sale of pharmaceuticals.
The Company in 2006 had total revenues of $314,844 of which $125,938
was revenue recognized for providing medical care, and $188,906 for
the sale of pharmaceuticals.
14
TONGJI HEALTHCARE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2007 AND 2006
NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recent Accounting Pronouncements
In September 2006, the FASB issued SFAS 157, "Fair Value
Measurements." This standard defines fair value, establishes a
framework for measuring fair value in generally accepted accounting
principles, and expands disclosure about fair value measurements.
This statement is effective for financial statements issued for
fiscal years beginning after November 15, 2007. Early adoption is
encouraged. The adoption of SFAS 157 is not expected to have a
material impact on the consolidated financial statements.
In September 2006, the FASB issued SFAS 158, "Employers' Accounting
for Defined Benefit Pension and Other Postretirement Plans, an
amendment of FASB Statements 87, 88, 106 and 132(R)" ("SFAS 158").
SFAS 158 requires an employer to recognize the over-funded or
under-funded status of a defined benefit postretirement plan (other
than a multiemployer plan) as an asset or liability in its statement
of financial position and to recognize changes in that funded status
in the year in which the changes occur through comprehensive income.
SFAS 158 also requires the measurement of defined benefit plan
assets and obligations as of the date of the employer's fiscal
year-end statement of financial position (with limited exceptions).
Management does not expect adoption of SFAS 158 to have a material
impact on the Company's consolidated financial statements.
In February 2007, the FASB issued FAS No. 159, "The Fair Value
Option for Financial Assets and Financial Liabilities - Including an
amendment of FASB Statement No. 115", ("FAS 159") which permits
entities to choose to measure many financial instruments and certain
other items at fair value at specified election dates. A business
entity is required to report unrealized gains and losses on items
for which the fair value option has been elected in earnings at each
subsequent reporting date. This statement is expected to expand the
use of fair value measurement. FAS 159 is effective for financial
statements issued for fiscal years beginning after November 15,
2007, and interim periods within those fiscal years.
In July 2006, the FASB issued Interpretation No. 48 (FIN No. 48),
"Accounting for Uncertainty in Income Taxes." This interpretation
requires recognition and measurement of uncertain income tax
positions using a "more-likely-than-not" approach. FIN No. 48 is
effective for fiscal years beginning after December 15, 2006.
Management is still evaluating what effect this will have on the
Company's consolidated financial statements.
In September 2006, the United States Securities and Exchange
Commission ("SEC") issued SAB 108, "Considering the Effects of Prior
Year Misstatements when Quantifying Misstatements in Current Year
Financial Statements."
15
TONGJI HEALTHCARE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2007 AND 2006
NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recent Accounting Pronouncements (Continued)
This SAB provides guidance on the consideration of the effects of
prior year misstatements in quantifying current year misstatements
for the purpose of a materiality assessment. SAB 108 establishes an
approach that requires quantification of financial statement errors
based on the effects of each of the company's financial statements
and the related financial statement disclosures. SAB 108 permits
existing public companies to record the cumulative effect of
initially applying this approach in the first year ending after
November 15, 2006 by recording the necessary correcting adjustments
to the carrying values of assets and liabilities as of the beginning
of that year with the offsetting adjustment recorded to the opening
balance of retained earnings. Additionally, the use of the
cumulative effect transition method requires detailed disclosure of
the nature and amount of each individual error being corrected
through the cumulative adjustment and how and when it arose. The
Company does not anticipate that SAB 108 will have a material impact
on its consolidated financial statements.
NOTE 3- FIXED ASSETS
Fixed assets as of March 31, 2007 were as follows:
Estimated
Useful
Lives
(Years)
----------
Office equipment 5-10 $181,260
Medical equipment 5 794,415
Fixtures 10 93,093
Vehicles 5 36,002
--------
1,104,770
Less: accumulated 306,634
--------
depreciation
Property and equipment, net $798,136
========
There was $36,407 and $26,697 charged to operations for depreciation
expense for the three months ended March 31, 2007 and 2006,
respectively. There was no impairment for these assets during the
three months ended March 31, 2007 and 2006.
The Company leases the building and land from a related party, under
an arms length agreement. Rent expense included in selling and
promotional expenses for the three months ended March 31, 2007 and
2006 were approximately $6,340 and $6,126 (49,316 RMB each period),
respectively. The lease term runs from October 2003 to December
2008.
16
TONGJI HEALTHCARE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2007 AND 2006
NOTE 4- INVENTORIES
Inventories consisted of the following as of March 31, 2007:
Medicines and $78,813
pharmaceuticals
Less: provision for
write-down of inventory -
-------
Inventory, net $78,813
=======
There was no obsolescence of inventory or write-downs of inventory
for the three months ended March 31, 2007 and 2006.
NOTE 5- STOCKHOLDERS' EQUITY
Common Stock
As of March 31, 2007, the Company has 50,000,000 shares of common
stock authorized with a par value of $0.001.
The Company issued 15,652,557 shares of common stock in exchange of
100% of the authorized capital of Nanning Tongji Hospital Co. Ltd.
(CHINA) in 2006. There were no shares issued in 2007.
Nanning Tongji Hospital Co. Ltd. (CHINA) in 2003 issued 3,000,000
shares.
The Company has not granted any options or warrants during 2007 or
2006, and there are no options or warrants outstanding as of March
31, 2007.
Preferred Stock
As of March 31, 2007, the Company has 20,000,000 shares of preferred
stock authorized with a par value of $0.001. There are no shares
issued and outstanding.
Statutory Reserves
The Company is required to make appropriations to reserve funds,
comprising the statutory surplus reserve, statutory welfare fund and
discretionary surplus reserve, based on after-tax net income
determined in accordance with generally accepted accounting
principles of the PRC ("PRC GAAP"). Appropriation to the statutory
surplus reserve is required to be at least 10% of the after tax net
income determined in accordance with the PRC GAAP until the reserve
is equal to 50% of the entities' registered capital.
17
TONGJI HEALTHCARE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2007 AND 2006
NOTE 5- STOCKHOLDERS' EQUITY (CONTINUED)
Statutory Reserves (Continued)
Appropriations to the statutory public welfare fund is required to
be 10% of the after-tax net income determined in accordance with the
PRC GAAP. Appropriations to the discretionary surplus reserve are
made at the discretion of the Board of Directors.
The statutory reserve fund is non-distributable other than during
liquidation and can be used to fund previous years' losses, if any,
and may be utilized for business expansion or converted into share
capital by issuing new shares to existing shareholders in proportion
to their shareholding or by increasing the par value of the shares
currently held by them, providing that the remaining reserve balance
after such issue is not less than 25% of the registered capital.
The statutory welfare reserve can only be utilized on capital items
for the collective benefit of the Company's employees, such as
construction of dormitories, cafeteria facilities, and other staff
welfare facilities. This fund is non-distributable other than
liquidation. The transfer to this fund must be made before
distribution of any dividend to shareholders.
The discretionary surplus fund may be used to acquire fixed assets
or to increase the working capital to expend on production and
operation of the business. The Company's Board of Directors decided
not to make appropriations to this reserve.
NOTE 6- PROVISION FOR INCOME TAXES
Corporate Income Taxes
In accordance with the relevant tax laws and regulations of PRC, the
corporate income tax rate is 33%. As noted, the corporate income tax
for 2004 through 2006 was 0% due to the Company's receipt of a
waiver (tax relief) from the PRC government as they acquired a
previous government-owned hospital and privatized it and improved
it. Commencing, 2007, the corporate tax rate will be 33%.
Business Taxes
In accordance with the relevant tax laws and regulations of PRC, the
Company is required to pay business taxes of 5% of income they
derive from providing medical treatment and then 7% and 3%,
respectively for city construct taxes and educational taxes. As
noted, the Company has received a waiver for these taxes for the
years ending 2006 through 2008.
18
TONGJI HEALTHCARE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2007 AND 2006
NOTE 6- PROVISION FOR INCOME TAXES (CONTINUED)
At March 31, 2007 and 2006, corporate income and business taxes
consist of the following:
2007 2006
---- ----
Coporate income tax $10,800 $ -
Business taxes including city construct
and educational taxes - -
--------- ---------
$10,800 $ -
========= =========
A reconciliation of the PRC enterprise income tax and business tax
rate to the effective income tax rate is as follows:
---------------------------
2007 2006
----------- ------------
Statutory rate - corporate income tax 33% 0%
Business taxes 2 0
----------- ------------
35% 0%
=========== ============
Deferred income taxes are determined using the liability method for
the temporary differences between the financial reporting basis and
income tax basis of the Company's assets and liabilities. Deferred
income taxes are measured based on the tax rates expected to be in
effect when the temporary differences are included in the Company's
tax return. Deferred tax assets and liabilities are recognized based
on anticipated future tax consequences attributable to differences
between financial statement carrying amounts of assets and
liabilities and their respective tax bases. The Company has no
temporary or permanent differences. Therefore, no deferred tax
assets and liabilities have been recognized and no valuation
allowance has been established.
The depreciation methods and lives the Company utilizes are
identical for book and tax purposes. Additionally, there is no
income or expense included in books not included in tax.
NOTE 7- RELATED PARTY TRANSACTIONS
Due from Related Party
The Company has entered into an agreement with Nanning Tongji Chain
Pharmacy Co. Ltd. whereby the Company from time to time will advance
amounts to Nanning Tongji Chain Pharmacy Co., Ltd. to assist them in
their operations. The two companies have common shareholders. The
advanced amounts accrue interest at a rate of 6% per annum which
exceeds the interest rates in the PRC for similar borrowings.
The Company as of March 31, 2007 is owed, $144,369. Accrued
interest receivable on this agreement of $20,334 as of March 31,
2007, is included in due from related party.
19
TONGJI HEALTHCARE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2007 AND 2006
NOTE 7- RELATED PARTY TRANSACTIONS (CONTINUED)
Due from Related Party (Cont'd)
The Company has entered into an agreement with Guangxi Tongji
Medicine Co. Ltd. whereby the Company from time to time will be
advanced amounts to assist them in their operations. The two
companies have common shareholders. The advanced amounts accrue
interest at a rate of 6% per annum which exceeds the interest rates
in the PRC for similar borrowings. The Company, as of March 31,
2007, is indebted to Guangxi Tongji Medicine Co. Ltd. in the amount
of $160,174. Accrued interest payable on this agreement of $48,784
as of March 31, 2007, is included in due to related party.
The Company has entered into an agreement with the Chairman of the
Company, Mr. Yunhui Yu whereby the Company from time to time will be
advanced amounts to assist them in their operations. The advanced
amounts accrue interest at a rate of 6% per annum which exceeds the
interest rates in the PRC for similar borrowings. The Company as of
March 31, 2007 is indebted to their Chairman in the amount of
$113,008. Accrued interest payable on this agreement of $20,809 as
of March 31, 2007, is included in due to related party.
Rental
The Company has entered into a lease agreement for their hospital
with Guangxi Tongji Medicine Co. Ltd. that expires December 2008.
Monthly rentals are 16,438.86 per month (RMB). Included in due to
related parties as of March 31, 2007 is $87,144 in amounts that are
currently due. Based on the exchange rate at March 31, 2007, minimum
lease payments are as follows:
Period ending March 31, 2008 $25,221
2009 18,915
20
TONGJI HEALTHCARE GROUP, INC.
No dealer salesman or other person has been authorized to give any information
or to make any representations, other than those contained in this prospectus.
Any information or representation not contained in this prospectus must not be
relied upon as having been authorized by us. This prospectus does not constitute
an offer to sell, or a solicitation of an offer to buy, the securities offered
hereby in any state or other jurisdiction to any person to whom it is unlawful
to make such offer or solicitation. Neither the delivery of this prospectus nor
any sale made hereunder shall, under any circumstances, create an implication
that there has been no change in our affairs since the date of this prospectus.
TABLE OF CONTENTS
Page
Prospectus Summary ...........................................
Risk Factors ..................................................
Market for Our Common Stock ...................................
Management's Discussion and Analysis of Results of Operation ..
Business ......................................................
Management ....................................................
Principal Shareholders ........................................
Selling Shareholders ..........................................
Description of Capital Stock...................................
Experts .......................................................
Indemnification ...............................................
Additional Information ........................................
Financial Statements ..........................................
Until ________________, ____ (90 days from the date of this prospectus), all
dealers that effect transactions in these securities, whether or not
participating in this offering, may be required to deliver a prospectus. This is
in addition to the dealers' obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Our Articles of Incorporation provide for indemnification of our officers,
directors and controlling persons to the full extent provided by Nevada law. Our
Articles of Incorporation also provide that no director is personally liable to
us or our stockholders for monetary damages for any breach of fiduciary duty by
such person as a director or officer except for (i) a breach of the director's
duty of loyalty to us or our stockholders, (ii) acts or omissions not in good
faith or which involve intentional misconduct, fraud or a knowing violation of
law, (iii) a transaction from which the director received an improper benefit or
(iv) an act or omission for which the liability of a director is expressly
provided under Nevada law.
Under the Nevada corporate statutes, Nevada corporations are permitted to
indemnify their officers and directors for liability to stockholders, so long as
such indemnification does not include the items set forth in the previous
paragraph under (i) through (iv).
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
SEC Registration Fees $ 215
Legal Fees $ 40,000
Accounting Fees $ 30,000
Miscellaneous Expenses $ 4,785
----------
Total $ 75,000
==========
(1) All expenses, except the SEC registration fee, are estimated.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
The only shares which the Company has issued were 15,652,557 shares issued
in December 2006 to 243 persons in connection with the acquisition of Nanning
Tongji Hospital Co., Ltd., a Chinese corporation. These shares were all issued
to non-U.S. persons who reside outside of the United States. The negotiations
and agreements relating to the issuance of these shares were made by the
Company's officers (who were all Chinese citizens) from China. There is no
market for the Company's securities in the United States and none of the
securities have been transferred since their issuance. The issuance of these
shares was exempt from the registration requirements of the Securities Act of
1933 pursuant to Rule 901 of the Securities and Exchange Commission.
1
ITEM 27. EXHIBIT INDEX.
Number Exhibit
2 Plan of Merger *
3.1 Articles of Incorporation *
3.2 Bylaws *
5 Opinion of Counsel *
10.1 Employment Contracts *
10.2 Hospital Lease *
10.3 Agreement with Guangxi Tongji Medicine Co., Ltd. *
10.4 Agreement for Medicare Service - The Management Center of
Social Medical Treatment Insurance of Nanning.
10.5 Agreement for Medicare Service - Social Security Department of
Guangxi Zhuang Municipality
21. Subsidiaries *
23.1 Consent of Attorneys *
23.2 Consent of Accountants ___
* Filed with initial registration statement.
ITEM 28. UNDERTAKINGS.
(a) The small business issuer will:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this Registration Statement to.
(i) Include any Prospectus required by Section l0 (a)(3) of the
Securities Act:
(ii) Reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in the
registration statement. Notwithstanding the foregoing, any increase or decrease
in volume of securities offered (if the total dollar value of securities offered
would not exceed that which was registered) and any deviation from the low or
high end of the estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than a 20% change
in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
2
(iii) Include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
(4) For determining liability of the undersigned small business issuer
under the Securities Act to any purchaser in the initial distribution of the
securities, the undersigned small business issuer undertakes that in a primary
offering of securities of the undersigned small business issuer pursuant to this
registration statement, regardless of the underwriting method used to sell the
securities to the purchaser, if the securities are offered or sold to such
purchaser by means of any of the following communications, the undersigned small
business issuer will be a seller to the purchaser and will be considered to
offer or sell such securities to such purchaser:
(i) Any preliminary prospectus or prospectus of the undersigned small
business issuer relating to the offering required to be filed pursuant to Rule
424;
(ii) Any free writing prospectus relating to the offering prepared by
or on behalf of the undersigned small business issuer or used or referred to by
the undersigned small business issuer;
(iii) The portion of any other free writing prospectus relating to the
offering containing material information about the undersigned small business
issuer or its securities provided by or on behalf of the undersigned small
business issuer; and
(iv) Any other communication that is an offer in the offering made by
the undersigned small business issuer to the purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of l933 (the "Act") may be permitted to directors, officers and controlling
persons of the Small Business Issuer pursuant to the foregoing provisions or
otherwise, the Small Business Issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Small Business Issuer of expenses incurred or paid by a director, officer or
controlling person of the Small Business Issuer in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Small Business
Issuer will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question of whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
(c) That, for the purpose of determining liability under the Securities Act
to any purchaser:
(1) If the small business issuer is relying on Rule 430B:
3
(i) Each prospectus filed by the undersigned small business issuer
pursuant to Rule 424(b)(3) shall be deemed to be part of the registration
statement as of the date the filed prospectus was deemed part of and included in
the registration statement; and
(ii) Each prospectus required to be filed pursuant to Rule 424(b)(2),
(b)(5), or (b)(7) as part of a registration statement in reliance on Rule 430B
relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) for
the purpose of providing the information required by section 10(a) of the
Securities Act shall be deemed to be part of and included in the registration
statement as of the earlier of the date such form of prospectus is first used
after effectiveness or the date of the first contract of sale of securities in
the offering described in the prospectus. As provided in Rule 430B, for
liability purposes of the issuer and any person that is at that date an
underwriter, such date shall be deemed to be a new effective date of the
registration statement relating to the securities in the registration statement
to which that prospectus relates, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof. Provided,
however, that no statement made in a registration statement or prospectus that
is part of the registration statement or made in a document incorporated or
deemed incorporated by reference into the registration statement or prospectus
that is part of the registration statement will, as to a purchaser with a time
of contract of sale prior to such effective date, supersede or modify any
statement that was made in the registration statement or prospectus that was
part of the registration statement or made in any such document immediately
prior to such effective date; or
(2) If the small business issuer is subject to Rule 430C, include the
following:
Each prospectus filed pursuant to Rue 424(b) as part of a registration
statement relating to an offering, other than registration statements relying on
Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be
deemed to be part of and included in the registration statement as of the date
it is first used after effectiveness. Provided, however, that no statement made
in a registration statement or prospectus that is part of the registration
statement or made in a document incorporated or deemed incorporated by reference
into the registration statement or prospectus that is part of the registration
statement will, as to a purchaser with a time of contract of sale prior to such
first use, supersede or modify any statement that was made in the registration
statement or prospectus that was part of the registration statement or made in
any such document immediately prior to such date of first use.
4
SIGNATURES
Pursuant to the requirements of the Securities Act, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing Form SB-2 and has caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the city of Xi'an, China on June 7, 2007.
TONGJI HEALTHCARE GROUP, INC.
By: /s/ Yun-hui Yu
----------------------------------------
Yun-hui Yu, President and Chief Executive
Officer
By: /s/ Wei-dong Huang
-----------------------------------------
Wei-dong Huang, Chief Financial and
Accounting Officer
Pursuant to the requirements of the Securities Act, as amended, this
Registration Statement has been signed below by the following persons.
Name Position Date
- ----- --------- ----
/s/ Yun-hui Yu Director June 7, 2007
- --------------------------
Yun-hui Yu
/s/ Jing-xi Lv Director June 7, 2007
- --------------------------
Jing-xi Lv
/s/ Jia-lin Zhang Director June 7, 2007
- --------------------------
Jia-lin Zhang
/s/ Lin Lin Director June 7, 2007
- --------------------------
Lin Lin
/s/ Xiang-wei Zeng Director June 7, 2007
- --------------------------
Xiang-wei Zeng
EXHIBITS